Question 1

A technical forecaster is also known as a ________.
A) CFO
B) de facto economist
C) chartist
D) monetary administrator

Accepted Answer

A technical forecaster uses charts and other technical analysis tools to predict future market trends and investment opportunities, and is also known as a chartist. CFOs and monetary administrators may be involved in financial forecasting, but their roles are broader and include other responsibilities such as financial management and oversight. "De facto economist" is not a common term used in the financial forecasting industry.

Question 2

Many economists have predicted that Hong Kong will change its currency system to the ________.
A) U.S. dollar
B) euro
C) yuan
D) won

Accepted Answer

As Hong Kong is a special administrative region of China, it is likely that its currency system will eventually switch to the yuan. In fact, there has already been a growing trend of using yuan in Hong Kong's financial system in recent years. Therefore, option C is the best choice.

Question 3

Ted,a manager at Global Manufacturing,is analyzing trends in economic variables to predict future exchange rates that might affect the MNEs international operations. Which of the following is Ted most likely doing?
A) fundamental forecasting
B) technical forecasting
C) resource forecasting
D) economic forecasting

Accepted Answer

Ted is analyzing economic variables to predict future exchange rates, which is a characteristic of fundamental forecasting. Technical forecasting involves analyzing past trends and patterns to predict future outcomes, while resource forecasting involves predicting future resource needs for a company. Economic forecasting is a more general term that can encompass various types of forecasting, including fundamental forecasting. Therefore, A) fundamental forecasting is the best choice.

Question 4

According to the text,which currency is expected to experience the most change in the upcoming years?
A) yen
B) yuan
C) euro
D) U.S. dollar

Accepted Answer

The text states that "the yuan could be the currency to watch in the years ahead," indicating that the yuan is expected to experience the most change. The other currencies mentioned in the text (yen, euro, U.S. dollar) are not specifically mentioned as potential candidates for significant change.

Question 5

Tanya is a manager at a global firm that has operations located in Brazil,India,and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following questions is most relevant to Tanya?
A) What is the cyclical situation in terms of employment and inflation?
B) Are the government's intervention practices sustainable?
C) What level of credibility does the government have?
D) What is the possibility of a national crisis?

Accepted Answer

The answer of Tanya is a manager at a global...

Question 6

The International Fisher Effect implies that ________
A) the country with the higher interest rate should have lower inflation
B) the currency of the country with the lower interest rate will strengthen in the future
C) the currency of the country with the higher interest rate will strengthen in the future
D) interest rates and inflation are not linked at all

Accepted Answer

The International Fisher Effect suggests that the currency of the country with the lower interest rate will appreciate in the future relative to the currency of the country with the higher interest rate, due to expected differences in inflation rates.

Question 7

Forecasters must predict the magnitude,direction,and ________ of an exchange rate change or movement.
A) length
B) timing
C) altitude
D) depth

Accepted Answer

Forecasters must predict the timing of an exchange rate change or movement in addition to its magnitude and direction. However, altitude, length, and depth are not relevant factors in forecasting exchange rates.

Question 8

It is easier to predict the ________ of a change than the ________ of a change in exchange rates.
A) altitude; magnitude
B) depth; length
C) timing; depth
D) direction; magnitude

Accepted Answer

It is often easier to predict the direction (up or down) of a change in exchange rates than the magnitude (how much it will change by). This is because various factors, such as economic and political events, can impact exchange rates and their effects can be difficult to quantify accurately.

Question 9

If the euro continues to remain strong against the U.S. dollar,which of the following strategies would make the most sense for BMW?
A) It might be advantageous for them to consider exporting from Germany to the U.S. to take advantage of cheaper costs.
B) It might increase its manufacturing capacity in the United States to take advantage of the cheaper dollar.
C) It might consider raising prices in the United States to earn more profits for BMW.
D) It really doesn't make any difference to BMW since consumers will buy the cars no matter what they cost.

Accepted Answer

If the euro remains strong against the U.S. dollar, BMW will have a cost advantage in the U.S. market by increasing its manufacturing capacity in the United States. This will allow BMW to avoid the high costs of importing, as well as take advantage of a cheaper dollar. This strategy will allow BMW to remain competitive and potentially increase its market share in the US. A and C are not the best choices, as raising prices in the United States will make BMW less competitive and could result in a decrease in market share, while exporting from Germany might not offer the same cost advantages as manufacturing locally in the United States. D is not a reasonable option, as consumers are sensitive to prices, and if BMW raises prices, consumers may look to other brands that are more affordable.

Question 10

Sarah,a manager at Farley Enterprises,an MNE with operations in Asia,Europe,and North America,is using past trends in exchange rate movements to spot future trends. Which type of forecasting approach is Sarah most likely using?
A) fundamental
B) technical
C) application
D) economic

Accepted Answer

Sarah is using technical forecasting approach as she is using past trends in exchange rate movements to spot future trends. Technical forecasting approach involves the use of past data and trends to identify patterns and forecast future trends.

Question 11

Research has shown that past exchange rates are an accurate predictor of future exchange rates ________.
A) only in the long run
B) only in the very short run
C) only during times of economic crisis
D) only during times of economic calm

Accepted Answer

Research indicates that past exchange rates are not reliable predictors of future exchange rates in the long term due to the market's inherent unpredictability and the influence of myriad unpredictable factors. However, in the very short run, due to inertia and the slow reaction of markets to new information, past exchange rates can sometimes provide a rough guide.

Question 12

Which of the following most accurately describes the economic situation in El Salvador?
A) It is facing significant competition from neighboring countries that are not tied to the dollar.
B) It relies exclusively on the United States as a market for its products.
C) It now has the same exchange rate as other members of CACM.
D) It is putting more resources into industries that have a history of earning profits.

Accepted Answer

The answer of Which of the following most accurately describes...

Question 13

Which of the following accurately explains how producers are affected by exchange rate changes?
A) To save money, a manufacturer may decide to relocate production to a country with a stronger currency.
B) A manufacturing firm relocating to a country with a weak currency can make a cheap initial investment.
C) Goods manufactured in a country with a weak currency may be relatively expensive in world markets.
D) A manufacturer with high operating expenses would likely relocate production to a country with a currency that is gaining value.

Accepted Answer

A weak currency can make initial investments cheaper for a manufacturing firm relocating to that country, as their stronger currency will have more purchasing power in the weaker currency environment.

Question 14

In a country with a currency that is not freely floating,the timing of an exchange rate change is often a ________ decision.
A) cultural
B) consensus
C) political
D) market

Accepted Answer

When a country's currency is not freely floating, the government or central bank often intervenes to control the exchange rate. Therefore, any decision to change the exchange rate is likely to be a political decision, as it involves the government or central bank making a policy decision to implement the change. The timing of such a decision is likely to be influenced by political considerations, such as the impact of the exchange rate change on the economy, trade policy, and political stability.

Question 15

If the real interest rate is 5%,the rate of inflation in the United States is 6%,and the rate of inflation in the United Kingdom is 3%,which of the following statements would NOT be true?
A) The nominal rate of interest in the U.S. would be greater than the nominal interest rate in the U.K.
B) The difference between the U.K. and U.S. interest rates is a function of the difference between their inflation rates.
C) The nominal rate of interest in the United States and the United Kingdom would be the same because of purchasing power parity.
D) Investors would get a higher return on their money in the United States.

Accepted Answer

Purchasing power parity refers to the idea that exchange rates should adjust so that the same basket of goods costs the same in different countries. It does not necessarily mean that interest rates will be the same across countries, so statement C is not necessarily true. Statements A, B, and D are all true based on the information given.

Question 16

Craig,a manager at a global firm,is studying the cyclical nature of growth and employment as a part of the process to forecast exchange rates. Which factor is Craig most likely monitoring?
A) the institutional setting
B) fundamental analyses
C) cultural analyses
D) circumstances

Accepted Answer

Fundamental analyses involve the study of economic factors, including the cyclical nature of growth and employment, to predict exchange rates. This is most likely the factor that Craig is monitoring. The other options, such as institutional setting, cultural analyses, and circumstances, may also have an impact on exchange rates, but they are not directly related to the cyclical nature of growth and employment.

Question 17

Ray,a marketer at a global firm,monitors the exchange rate of countries in which the firm sells its products. Ray is most likely concerned about changes in ________.
A) operating expenses
B) exporting policies
C) product demand
D) quality control

Accepted Answer

The answer of Ray,a marketer at a global firm,monitors the...

Question 18

Shelly,a manager at a global firm,is studying the foreign currency intervention practices of Indonesia. Shelly is most likely examining ________ factors.
A) institutional setting
B) fundamental analysis
C) confidence
D) circumstantial

Accepted Answer

Shelly is specifically studying the institutional setting of Indonesia's foreign currency intervention practices, which is related to the larger political and legal framework of the country's economic policies.

Question 19

Endaka,the "high yen," caused financial problems for ________.
A) Japanese foreign-exchange reserves
B) American foreign-exchange reserves
C) Japanese importers
D) Japanese exporters

Accepted Answer

The high yen or endaka caused financial problems for Japanese exporters as it made their goods and products more expensive for foreign buyers, ultimately leading to a decrease in demand and profits.

Question 20

Tanya is a manager at a global firm that has operations located in Brazil,India,and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following is a confidence factor that Tanya should consider in trying to predict exchange rate movements in each country?
A) What are the expectations of the market with respect to the political environment?
B) Have there been significant national events that have appeared in the news lately?
C) At what rates do there appear to be buy and sell orders?
D) What trends do the charts show?

Accepted Answer

The answer of Tanya is a manager at a global...

Quiz 10: The Determination of Exchange Rates

A technical forecaster is also known as a ________.

Many economists have predicted that Hong Kong will change its currency system to the ________.

Ted,a manager at Global Manufacturing,is analyzing trends in economic variables to predict future exchange rates that might affect the MNEs international operations. Which of the following is Ted most likely doing?

According to the text,which currency is expected to experience the most change in the upcoming years?

Tanya is a manager at a global firm that has operations located in Brazil,India,and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following questions is most relevant to Tanya?

The International Fisher Effect implies that ________

Forecasters must predict the magnitude,direction,and ________ of an exchange rate change or movement.

It is easier to predict the of a change than the of a change in exchange rates.

If the euro continues to remain strong against the U.S. dollar,which of the following strategies would make the most sense for BMW?

Sarah,a manager at Farley Enterprises,an MNE with operations in Asia,Europe,and North America,is using past trends in exchange rate movements to spot future trends. Which type of forecasting approach is Sarah most likely using?

Research has shown that past exchange rates are an accurate predictor of future exchange rates ________.

Which of the following most accurately describes the economic situation in El Salvador?

Which of the following accurately explains how producers are affected by exchange rate changes?

In a country with a currency that is not freely floating,the timing of an exchange rate change is often a ________ decision.

If the real interest rate is 5%,the rate of inflation in the United States is 6%,and the rate of inflation in the United Kingdom is 3%,which of the following statements would NOT be true?

Craig,a manager at a global firm,is studying the cyclical nature of growth and employment as a part of the process to forecast exchange rates. Which factor is Craig most likely monitoring?

Ray,a marketer at a global firm,monitors the exchange rate of countries in which the firm sells its products. Ray is most likely concerned about changes in ________.

Shelly,a manager at a global firm,is studying the foreign currency intervention practices of Indonesia. Shelly is most likely examining ________ factors.

Endaka,the "high yen," caused financial problems for ________.