Question 1

All things considered,it is unlikely that equality of real interest rates across countries is a good description of reality,especially in the short run.The following options explain the reasons for this EXCEPT:

Accepted Answer

A)  identical nominal returns imply very different real returns for investors in different countries. 
B)  returns in different currencies can have different currency risk premiums. 
C)  political risks or the threat of capital controls prevent investors from taking advantage of higher returns in other countries. 
D)  PPP deviations are not sizable and prolonged.

Question 2

Which of the following forecasting techniques is usually used for short-term forecasts using only past exchange rate data,and some other data such as the volume of currency trade,to predict future exchange rates?

Accepted Answer

A)  market-based forecasts 
B)  fundamental analysis 
C)  technical analysis 
D)  statistical analysis

Question 3

The covered interest rate parity,uncovered interest rate parity,and purchasing power parity,together with the Fisher hypothesis are often referred to as the

Accepted Answer

A)  determinants of expected nominal exchange rates. 
B)  determinants of expected nominal interest rates. 
C)  international parity conditions. 
D)  international arbitrage conditions.

Question 4

Construct a list of a country's economic statistics you would assemble to help determine the probability of a devaluation of its currency within the coming year.

Accepted Answer

The answer of Construct a list of a country's economic...

Question 5

The following three conditions together with the Fisher Hypothesis refer to as the international parity conditions EXCEPT:

Accepted Answer

A)  covered interest rate parity. 
B)  nominal interest rate parity. 
C)  purchasing power parity. 
D)  uncovered interest rate parity.

Question 6

A summary statistical measure frequently used when forecasting exchange rates is known as the

Accepted Answer

A)  standard deviation. 
B)  mean. 
C)  mean absolute error. 
D)  mode.

Question 7

________ techniques are typically based on formal economic models of exchange rate determination.

Accepted Answer

A)  Technical analysis 
B)  Fundamental analysis 
C)  Exchange rate forecasting 
D)  Mean absolute error

Question 8

Why would technical analysis not be useful if the international parity conditions held?

Accepted Answer

The answer of Why would technical analysis not be useful...

Question 9

What technical forecasting method is NOT a component of statistical analysis?

Accepted Answer

A)  chartism 
B)  filter rules 
C)  regression analysis 
D)  nonlinear analysis

Question 10

If a country has a capital account ________,it is ________ net 	foreign assets.

Accepted Answer

A)  surplus, acquiring 
B)  deficit, losing 
C)  surplus, losing 
D)  surplus, in equilibrium as far as its

Question 11

In late December 1990,one-year German Treasury bills yielded 9.1%,whereas one-year U.S.Treasury bills yielded 6.9%.At the same time,the inflation rate during 1990 was 6.3% in the U.S.,double the German rate of 3.1%.Were these inflation and interest rates consistent with the Fisher Effect?

Accepted Answer

The answer of In late December 1990,one-year German Treasury bills...

Question 12

Why would technical analysis to forecast future exchange rates be ineffective if all parity conditions prevailed?

Accepted Answer

A)  The best predictor of future rates would be the current spot rates. 
B)  The only predictor would be the volatility of future exchange rates. 
C)  The best predictor of future rates would be the forward rate. 
D)  The unbiased predictor would not exist due to market trends.

Exam 10: Exchange Rate Determination and Forecasting