Exam 10: The Determination of Exchange Rates

The International Fisher Effect implies that the country with the higher interest rate should have lower inflation.

When forecasting exchange rates,forecasters must predict the magnitude,timing,and direction of change in exchange rates.

How do exchange rate changes affect a company's marketing,production,and financial decisions? What predictors should a manager monitor to forecast exchange rate changes?

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 ________ is the currency most widely used as a reserve asset.

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?

Country X has a floating rate for luxury goods and a lower rate for semi-manufactured goods. Which of the following is most likely used by Country X?

According to the Treaty of Maastricht,a euro applicant must have a total outstanding government debt that does not exceed 60% of its GDP.

Fully convertible currencies are also called ________.

The central bank in the United States is the ________.

A current account deficit suggests that a country is importing more than it is exporting and building up foreign debt.

Although central banks are responsible for foreign exchange policy,they have no power to intervene in exchange rate markets.

A technical forecaster is also known as a ________.

The ________ theory seeks to define the relationship between currencies based on relative inflation.

Fundamental forecasters assume that if current exchange rates reflect all facts in the market,then under similar circumstances,future rates will follow the same patterns.

Given the daily volume of foreign-exchange transactions,it is most accurate to say which of the following?

________ is a form of locking the value of a country's currency onto another currency.

Hard currencies are usually ________.

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 ________.

Central bank reserve assets are kept in three major forms: foreign-exchange reserves,silver,and gold.