Exam 9: Forecasting Exchange Rates

Assume that U.S. annual inflation equals 8 percent, while Japanese annual inflation equals 5 percent. If purchasing power parity is used to forecast the future spot rate, the forecast would reflect an expectation of:

Which of the following is true regarding forecast errors?

​A fundamental forecast that uses multiple values of the influential factors is an example of:

If it was determined that the movement of exchange rates was not related to previous exchange rate values, this implies that a ____ is not valuable for speculating on expected exchange rate movements.

The absolute forecast error of a currency is ____, on average, in periods when the currency is more ____.

Sensitivity analysis allows for all of the following except:

Which of the following is not one of the major reasons for MNCs to forecast exchange rates?

Using the inflation differential between two countries to forecast their exchange rates is not always accurate because of such factors as the uncertain timing of the impact of inflation and barriers to trade.

Research indicates that currency forecasting services almost always outperform forecasts based on the forward rate.

A motivation for forecasting exchange rate volatility is to obtain a range surrounding the forecast.

If speculators expect the spot rate of the yen in 60 days to be ____ than the 60-day forward rate on the yen, they will ____ the yen forward and put ____ pressure on the yen's forward rate.​

A forecasting technique based on fundamental relationships between economic variables and exchange rates, such as inflation, is referred to as technical forecasting.

​Which of the following forecasting techniques would be most likely to use the historical exchange rate data for the euro to predict the euro's future exchange rate?

Which of the following is not a limitation of fundamental forecasting?

Which of the following is not a forecasting technique mentioned in your text?

Gamma Corp. has incurred large losses over the last ten years due to exchange rate fluctuations of the Egyptian pound (EGP), even though the company has used a market-based forecast based on the forward rate. Consequently, management believes its forecasts are biased. The following regression model was estimated to determine if the forecasts over the last ten years were biased: ​ S_t = a₀ + a₁F_{t - 1} + F $\mu$ _t, ​ Where S_t is the spot rate of the pound in year t and F_{t -1} is the forward rate of the pound in year t_- Regression results reveal coefficients of a₀ = 0 and a₁ = 1.3. Thus, Gamma has reason to believe that its past forecasts have ____ the realized spot rate.

Foreign exchange markets are generally found to be at least ____ efficient, which implies that all public information is considered within the markets.

If points are scattered evenly on both sides of the perfect forecast line, then the forecast appears to be very accurate.

The most sophisticated forecasting techniques provide consistently accurate forecasts.

A regression analysis of the Australian dollar's value on the inflation differential between the United States and Australia produced a coefficient of .8. Thus, for every 1 percent increase in the inflation differential, the Australian dollar is expected to depreciate by .8 percent.