International Financial Management Study Set 9

Business

Quiz 9 :

Forecasting Exchange Rates

Quiz 9 :

Forecasting Exchange Rates

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The closer graphical points are to the perfect forecast line, the better is the forecast.
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True

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Foreign exchange markets are generally found to be at least ____ efficient.
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B

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If a foreign country's interest rate is similar to the UK rate, the forward rate premium or discount will be ____, meaning that the forward rate and spot rate will provide ____ forecasts.
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C

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Assume a forecasting model uses inflation differentials and interest rate differentials to forecast the exchange rate. Assume the regression coefficient of the interest rate differential variable is -0.5, and the coefficient of the inflation differential variable is 0.4. Which of the following is true?
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The absolute forecast error of a currency is ____, on average, in periods when the currency is more ____.
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MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.
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Corporations tend to make only limited use of technical forecasting because it typically focuses on the near future, which is not very helpful for developing corporate policies.
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If foreign exchange markets are strong-form efficient, then all relevant public and private information is already reflected in today's exchange rates.
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If the forward rate was expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then:
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According to the text, research supports ____ in foreign exchange markets.
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Assume that interest rate parity holds. The UK five-year interest rate is 5% annualized, and the Brazilian five-year interest rate is 8% annualized. Today's spot rate of the Brazilian real is £0.25. What is the approximate five-year forecast of the real's spot rate if the five-year forward rate is used as a forecast?
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When measuring forecast performance of different currencies, it is often useful to adjust for their relative sizes. Thus, percentages, rather than nominal amounts, are often used to compute forecast errors.
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Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is £0.61. The spot rate forecasted for one year ahead is:
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Factors such as economic growth, inflation, and interest rates are an integral part of ____ forecasting.
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Which of the following is the common exchange rate forecasting technique?
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If points are scattered evenly on both sides of the perfect forecast line, then the forecast appears to be very accurate.
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Which of the following forecasting techniques would best represent the use of today's forward exchange rate to forecast the future exchange rate?
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If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have:
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If today's exchange rate reflects all relevant public information about the euro's exchange rate, but not all relevant private information, then ____ would be refuted.
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When the value from the prior period of an influential factor affects the forecast in the future period, this is an example of a:
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