Question 1

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

Accepted Answer

A) accounting-based forecasting 
B) technical forecasting 
C) fundamental forecasting 
D) market-based forecasting 
A) accounting-based forecasting 
B) technical forecasting 
C) fundamental forecasting 
D) market-based forecasting A

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

Forecast errors tend to be large for short forecast horizons.

Accepted Answer

A) True 
 B)False  False

Question 4

If the one-year forward rate for the euro is $1.07, while the current spot rate is $1.05, the expected percentage change in the euro is ____ percent.

Accepted Answer

A) 1.90 
B) 2.00 
C) -1.87 
D) none of the above 
A) 1.90 
B) 2.00 
C) -1.87 
D) none of the above

Question 5

Different departments in an MNC should establish their own exchange rate forecasts because each department can best determine the type of forecasts that it needs.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a limitation of technical forecasting?​

Accepted Answer

A) It's not suitable for long-term forecasts of exchange rates. 
B) It doesn't provide point estimates or a range of possible future values. 
C) It cannot be applied to currencies that exhibit random movements. 
D) It cannot be applied to currencies that exhibit a continuous trend for short-term forecasts. 
A) It's not suitable for long-term forecasts of exchange rates. 
B) It doesn't provide point estimates or a range of possible future values. 
C) It cannot be applied to currencies that exhibit random movements. 
D) It cannot be applied to currencies that exhibit a continuous trend for short-term forecasts.

Question 7

The U.S. inflation rate is expected to be 4 percent over the next year, while the European inflation rate is expected to be 3 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $____.

Accepted Answer

A) 1.02 
B) 1.03 
C) 1.04 
D) none of the above 
A) 1.02 
B) 1.03 
C) 1.04 
D) none of the above

Question 8

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.

Accepted Answer

A) technical forecast technique 
B) fundamental forecast technique 
C) all of the above 
D) none of the above 
A) technical forecast technique 
B) fundamental forecast technique 
C) all of the above 
D) none of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) lower; volatile 
B) higher; stable 
C) lower; stable 
D) none of the above 
A) lower; volatile 
B) higher; stable 
C) lower; stable 
D) none of the above

Question 11

Leila Corp. used the following regression model to determine if the forecasts over the last ten years were biased:
$ S_{t}=a_{0}+a_{1} F_{t}-1+\mu t $, 
where St is the spot rate of the yen in year t and Ft - 1 is the forward rate of the yen in year t - 1. Regression results reveal coefficients of a₀ = 0 and a₁ = .30. Thus, Leila Corp. has reason to believe that its past forecasts have ____ the realized spot rate.

Accepted Answer

A) overestimated 
B) underestimated 
C) correctly estimated 
D) none of the above 
A) overestimated 
B) underestimated 
C) correctly estimated 
D) none of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A regression model was applied to explain movements in the Canadian dollar's value over time. The coefficient for the inflation differential between the United States and Canada was -0.2. The coefficient of the interest rate differential between the United States and Canada produced a coefficient of 0.8. Thus, the Canadian dollar depreciates when the inflation differential ____ and the interest rate differential ____.

Accepted Answer

A) increases; increases 
B) decreases; increases 
C) increases; decreases 
D) decreases; decreases 
A) increases; increases 
B) decreases; increases 
C) increases; decreases 
D) decreases; decreases

Question 14

If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is:​

Accepted Answer

A) weak-form efficient. 
B) semistrong-form efficient. 
C) strong-form efficient. 
D) all of the above. 
A) weak-form efficient. 
B) semistrong-form efficient. 
C) strong-form efficient. 
D) all of the above.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The following regression model was estimated to forecast the percentage change in the Australian dollar (AUD):
 
Where AUD is the quarterly change in the Australian dollar, INT is the real interest rate differential in period t between the United States and Australia, and INF is the inflation rate differential between the United States and Australia in the previous period. Regression results indicate coefficients of a₀=.001; a₁=-.8; and a₂=.5. Assume that INFt - 1 = 4%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:

There is a 20 percent probability that the Australian dollar will change by ____, and an 80 percent probability it will change by ____.

Accepted Answer

A) 4.5 percent; 6.1 percent 
B) 6.1 percent; 4.5 percent 
C) 4.5 percent; 5.3 percent 
D) none of the above 
A) 4.5 percent; 6.1 percent 
B) 6.1 percent; 4.5 percent 
C) 4.5 percent; 5.3 percent 
D) none of the above

Question 17

Monson Co., based in the United States, exports products to Japan denominated in yen. If the forecasted value of the yen is substantially ____ than the forward rate, Monson Co. will likely decide ____ the payments.

Accepted Answer

A) higher; to hedge 
B) lower; not to hedge 
C) higher; not to hedge 
D) none of the above 
A) higher; to hedge 
B) lower; not to hedge 
C) higher; not to hedge 
D) none of the above

Question 18

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.

Accepted Answer

A) higher; buy; upward 
B) higher; sell; downward 
C) higher; sell; upward 
D) lower; buy; upward 
A) higher; buy; upward 
B) higher; sell; downward 
C) higher; sell; upward 
D) lower; buy; upward

Question 19

A forecast of a currency one year in advance is typically more accurate than a forecast one week in advance since the currency reverts to equilibrium over a longer term period.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) sensitivity analysis. 
B) discriminant analysis. 
C) technical analysis. 
D) factor analysis. 
A) sensitivity analysis. 
B) discriminant analysis. 
C) technical analysis. 
D) factor analysis.

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

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

Forecast errors tend to be large for short forecast horizons.

If the one-year forward rate for the euro is $1.07, while the current spot rate is $1.05, the expected percentage change in the euro is ____ percent.

Different departments in an MNC should establish their own exchange rate forecasts because each department can best determine the type of forecasts that it needs.

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

The U.S. inflation rate is expected to be 4 percent over the next year, while the European inflation rate is expected to be 3 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $____.

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.

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

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

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

If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is:

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

Monson Co., based in the United States, exports products to Japan denominated in yen. If the forecasted value of the yen is substantially than the forward rate, Monson Co. will likely decide the payments.

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 forecast of a currency one year in advance is typically more accurate than a forecast one week in advance since the currency reverts to equilibrium over a longer term period.

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

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 9: Forecasting Exchange Rates

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

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

Forecast errors tend to be large for short forecast horizons.

If the one-year forward rate for the euro is $1.07, while the current spot rate is $1.05, the expected percentage change in the euro is ____ percent.

Different departments in an MNC should establish their own exchange rate forecasts because each department can best determine the type of forecasts that it needs.

Which of the following is not a limitation of technical forecasting?​

The U.S. inflation rate is expected to be 4 percent over the next year, while the European inflation rate is expected to be 3 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $____.

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.

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

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

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

If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is:​

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

Monson Co., based in the United States, exports products to Japan denominated in yen. If the forecasted value of the yen is substantially ____ than the forward rate, Monson Co. will likely decide ____ the payments.

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 forecast of a currency one year in advance is typically more accurate than a forecast one week in advance since the currency reverts to equilibrium over a longer term period.

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

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

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

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

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

If today's exchange rate reflects any historical trends in Canadian dollar exchange rate movements, but not all relevant public information, then the Canadian dollar market is:

Monson Co., based in the United States, exports products to Japan denominated in yen. If the forecasted value of the yen is substantially than the forward rate, Monson Co. will likely decide the payments.

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.