Exam 9: Forecasting Exchange Rates

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.

Which of the following forecasting techniques would best represent sole use of today's spot exchange rate of the euro to forecast the euro's future exchange rate

Usually,fundamental forecasting is used for short-term forecasts,while technical forecasting is used for longer-term forecasts.

Assume that the U.S.interest rate is 11 percent,while Australia's one-year interest rate is 12 percent.Assume interest rate parity holds.If the one-year forward rate of the Australian dollar was used to forecast the future spot rate,the forecast would reflect an expectation of:

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

When measuring forecast performance of different currencies,it is often useful to adjust for their relative sizes.Thus,percentages,rather than nominal amounts,are often used to compute forecast errors.

Huge Corporation has just initiated a market-based forecast system using the forward rate as an estimate of the future spot rate of the Japanese yen (¥)and the Australian dollar (A$).Listed below are the forecasted and realized values for the last period: According to this information and using the absolute forecast error as a percentage of the realized value,Huge Corp.has forecasted the _______________ more accurately by ____________%.

If a foreign country's interest rate is similar to the U.S.rate,the forward rate premium or discount will be _________,meaning that the forward rate and spot rate will provide ________ forecasts.

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

The closer graphical points are to the perfect forecast line,the better is the forecast.

A regression analysis of the Australian dollar value on the inflation differential between the U.S.and Australia produced a coefficient of.8.Thus,for every 1% increase in the inflation differential,the Australian dollar is expected to depreciate by.8%.

MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.

If foreign exchange markets are strong-form efficient,then all relevant public and private information is already reflected in today's exchange rates.

Which of the following is true

The following regression model was estimated by Delta Corporation to forecast the value of the Indian rupee (INR): $I N R_{t}=a_{0}+a_{1} I N T_{t}+a_{2} I N F_{t-1}+\mu_{t}$ where INR is the quarterly change in the rupee, $I N T$ is the real interest rate differential in period $t$ between the U.S. and India, and $I N F$ is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of $a_{0}=.003 ; a_{1}=-.5$ ; and $a_{2}=.8$ . Assume that $I N F_{t-1}=2 \%$ . However, the interest rate differential is not known at the beginning of period $t$ and must be estimated. Delta Corp. has developed the following probability distribution: The expected change in the Indian rupee in period $t$ is:

Fundamental models examine moving averages over time and thus allow the development of a forecasting rule.

Sulsa Inc.uses fundamental forecasting.Using regression analysis,it has determined the following equation for the euro: =+bIN+IN =.005+.9IN+1.1IN The most recent quarterly percentage change in the inflation differential between the U.S.and Europe was 2 percent,while the most recent quarterly percentage change in the income growth differential between the U.S.and Europe was -1 percent.Based on this information,the forecast for the euro is a(n)__________ of _______%.

Assume that the forward rate is used to forecast the spot rate.  The forward rate of the Canadian dollar contains a 6% discount.  Today's spot rate of the Canadian dollar is $.80.  The spot rate forecasted for one year ahead is:

According to the text,research supports _______ in foreign exchange markets.

Which of the following is true according to the text