Exam 9: Foreign Exchange Rate Determination and Intervention

The most visible roots of the crisis were in the excesses of capital inflows into Thailand extending credit to a variety of domestic investments and enterprises beyond what the Thai economy could support and creating an investment "bubble."

The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.

The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets

________ is the active buying and selling of the domestic currency against foreign currencies.

Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security) prices in general?

The International Monetary Fund, as one of its basic principles (Article IV), encourages members to pursue "currency manipulation" to gain competitive advantages over other members as opposed to engaging in military action to achieve the same advantage.

The single most important element of technical analysis is that future exchange rates are based on the current exchange rate.

Examples of a business motivation for long-run exchange rate forecasts include all but which of the following?

Slow economic growth and continued unemployment problems are common reasons for central banks to hold currency values down.

________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate, i.e., they are linked AND mutually determined.

The authors did NOT identify which of the following as a root of the Asian currency crisis?

By 2001, crisis conditions had revealed three very important underlying problems Argentina's economy EXCEPT:

The roots of the Asian currency crisis extended from a fundamental change in the economics of the region, the transition of many Asian nations from being net importers to net exporters.

The ________ approach argues that equilibrium exchange rates are achieved when the net inflow of foreign exchange arising from current account activities is equal to the net outflow of foreign exchange arising from financial account activities.

The asset market approach to forecasting is not applicable to emerging markets.

The authors refer to the practice of many Asian firms being largely controlled by families of groups related to the governing body of the country as:

Critics of the balance of payments approach to exchange rate determination point to the emphasis on ________ of currency and capital rather than ________ of money or financial assets.

An important thing to remember about foreign exchange rate determination is that parity conditions, asset approach, and balance of payments approaches are ________ theories rather than ________ theories.

The "tequila effect" is a slang term used to describe a form of financial panic called: