Explanation:
A 4% appreciation in the CNY/ZAR exchange rate means that the base currency (CNY) has appreciated by 4% against the quote currency (ZAR). In the XXX/YYY notation favored by FRM examiners, X is the base currency and Y is the quote currency. Therefore, a 4% appreciation in CNY/ZAR means that one Chinese Yuan can now buy 4% more South African Rand than before, which implies a 4% appreciation in the Chinese Yuan (CNY) as compared to the South African Rand.
Choice A is incorrect because it incorrectly states that ZAR appreciated, when in fact CNY (the base currency) appreciated.
Choice C is incorrect because an appreciation in the exchange rate does not mean depreciation in both currencies; it specifically refers to the base currency appreciating.
Choice D is incorrect because while it correctly identifies the depreciation of ZAR, it misinterprets the relationship - a 4% appreciation in CNY/ZAR is equivalent to a 4% depreciation in ZAR/CNY, but the original statement is about CNY appreciating against ZAR, not just ZAR depreciating.
Q-3830: What does a 4% appreciation in the CNY/ZAR exchange rate imply?
A
It represents a 4 percent appreciation in the South African Rand (ZAR) as compared to the Chinese Yuan.
B
It represents a 4 percent appreciation in the Chinese Yuan (CNY) as compared to the South African Rand.
C
It represents a 4 percent depreciation in both the Chinese Yuan (CNY) and the South African Rand.
D
It represents a 4 percent depreciation in the South African Rand as compared to the Chinese Yuan (CNY)
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