Question 1

If a particular currency is consistently declining substantially over time, then a market-based forecast of a currency in a developed country will usually have:

Accepted Answer

A) underestimated the future exchange rates over time. 
B) overestimated the future exchange rates over time. 
C) forecasted future exchange rates accurately. 
D) forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating. 
A) underestimated the future exchange rates over time. 
B) overestimated the future exchange rates over time. 
C) forecasted future exchange rates accurately. 
D) forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating.

Question 2

Which of the following forecasting techniques would be most likely to use today's forward exchange rate to forecast the future exchange rate?

Accepted Answer

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

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

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

Question 5

If graphical points lie above the perfect forecast line, then the forecast overestimated the future value.

Accepted Answer

A) True 
B) False 
A) True 
B) False

Question 6

If the forward rate is used as an indicator of the future spot rate, the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount, respectively.

Accepted Answer

A) True 
 B)False

Question 7

Since the forward rate does not capture the nominal interest rate between two countries, it should provide a less accurate forecast for currencies in high-inflation countries than the spot rate.

Accepted Answer

A) True 
 B)False

Question 8

Assume that interest rate parity holds. The U.S. five-year interest rate is 5 percent annualized, and the Mexican five-year interest rate is 8 percent annualized. Today's spot rate of the Mexican peso is $.20. What is the approximate five-year forecast of the peso's spot rate if the five-year forward rate is used as a forecast?

Accepted Answer

A) $.131 
B) $.226 
C) $.262 
D) $.140 
E) $.174 
A) $.131 
B) $.226 
C) $.262 
D) $.140 
E) $.174

Question 9

The following regression model was estimated to forecast the value of the Indian rupee (INR):
 
Where INR is the quarterly change in the rupee, INT is the real interest rate differential in period t between the United States and India, and INF is the inflation rate differential between the United States and India in the previous period. Regression results indicate coefficients of a₀ = .003; a₁ = -.5; and a₂ = .8. Assume that INFt - 1 = 2 percent. 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:

The expected change in the Indian rupee in period t is:

Accepted Answer

A) 3.40 percent. 
B) 0.40 percent. 
C) 3.10 percent. 
D) 1.70 percent. 
E) none of the above 
A) 3.40 percent. 
B) 0.40 percent. 
C) 3.10 percent. 
D) 1.70 percent. 
E) none of the above

Question 10

Exchange rates one year in advance are typically forecasted with almost perfect accuracy for the major currencies, but not for currencies of smaller countries.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) to decide in which foreign market to invest excess cash 
B) to decide where to borrow at the lowest cost 
C) to determine whether to require a subsidiary to remit funds or invest them locally 
D) to speculate on exchange rate movements 
A) to decide in which foreign market to invest excess cash 
B) to decide where to borrow at the lowest cost 
C) to determine whether to require a subsidiary to remit funds or invest them locally 
D) to speculate on exchange rate movements

Question 12

Factors such as economic growth, inflation, and interest rates are an integral part of ____ forecasting.

Accepted Answer

A) technical 
B) fundamental 
C) market-based 
D) none of the above 
A) technical 
B) fundamental 
C) market-based 
D) none of the above

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true according to the text?

Accepted Answer

A) The forecast bias of a currency rarely shifts over time. 
B) The absolute forecast error as a percentage of the realized value is a good measure to use in detecting a forecast bias. 
C) Forecasting errors are smaller when focused on longer term periods. 
D) None of the above. 
A) The forecast bias of a currency rarely shifts over time. 
B) The absolute forecast error as a percentage of the realized value is a good measure to use in detecting a forecast bias. 
C) Forecasting errors are smaller when focused on longer term periods. 
D) None of the above.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) uncertain timing of impact of some factors 
B) forecasts needed for factors that have a lagged impact 
C) omission of other relevant factors from the model 
D) possible change in sensitivity of the forecasted variable to each factor over time 
E) none of the above 
A) uncertain timing of impact of some factors 
B) forecasts needed for factors that have a lagged impact 
C) omission of other relevant factors from the model 
D) possible change in sensitivity of the forecasted variable to each factor over time 
E) none of the above

Question 17

If speculators expect the spot rate of the Canadian dollar in 30 days to be ____ than the 30-day forward rate on Canadian dollars, they will ____ Canadian dollars forward and put ____ pressure on the Canadian dollar forward rate.

Accepted Answer

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

Question 18

Which of the following forecasting techniques would be most likely to use today's spot exchange rate of the euro to forecast the euro's future exchange rate?

Accepted Answer

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

Question 19

Market-based forecasting is based on fundamental relationships between economic variables and exchange rates.

Accepted Answer

A) True 
 B)False

Question 20

Assume that U.S. interest rates for the next three years are 5 percent, 6 percent, and 7 percent, respectively. Also assume that Canadian interest rates for the next three years are 3 percent, 6 percent, and 9 percent. The current Canadian spot rate is $.840. What is the approximate three-year forecast of the Canadian dollar's spot rate if the three-year forward rate is used as a forecast?​

Accepted Answer

A) $.840 
B) $.890 
C) $.856 
D) $.854 
A) $.840 
B) $.890 
C) $.856 
D) $.854

If a particular currency is consistently declining substantially over time, then a market-based forecast of a currency in a developed country will usually have:

Which of the following forecasting techniques would be most likely to use today's forward exchange rate to forecast the future exchange rate?

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.

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?

If graphical points lie above the perfect forecast line, then the forecast overestimated the future value.

If the forward rate is used as an indicator of the future spot rate, the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount, respectively.

Since the forward rate does not capture the nominal interest rate between two countries, it should provide a less accurate forecast for currencies in high-inflation countries than the spot rate.

Exchange rates one year in advance are typically forecasted with almost perfect accuracy for the major currencies, but not for currencies of smaller countries.

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

Factors such as economic growth, inflation, and interest rates are an integral part of ____ forecasting.

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

Which of the following is true according to the text?

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

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

If speculators expect the spot rate of the Canadian dollar in 30 days to be than the 30-day forward rate on Canadian dollars, they will Canadian dollars forward and put pressure on the Canadian dollar forward rate.

Which of the following forecasting techniques would be most likely to use today's spot exchange rate of the euro to forecast the euro's future exchange rate?

Market-based forecasting is based on fundamental relationships between economic variables and exchange rates.

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

If a particular currency is consistently declining substantially over time, then a market-based forecast of a currency in a developed country will usually have:

Which of the following forecasting techniques would be most likely to use today's forward exchange rate to forecast the future exchange rate?

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.

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?

If graphical points lie above the perfect forecast line, then the forecast overestimated the future value.

If the forward rate is used as an indicator of the future spot rate, the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount, respectively.

Since the forward rate does not capture the nominal interest rate between two countries, it should provide a less accurate forecast for currencies in high-inflation countries than the spot rate.

Exchange rates one year in advance are typically forecasted with almost perfect accuracy for the major currencies, but not for currencies of smaller countries.

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

Factors such as economic growth, inflation, and interest rates are an integral part of ____ forecasting.

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

Which of the following is true according to the text?

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

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

If speculators expect the spot rate of the Canadian dollar in 30 days to be ____ than the 30-day forward rate on Canadian dollars, they will ____ Canadian dollars forward and put ____ pressure on the Canadian dollar forward rate.

Which of the following forecasting techniques would be most likely to use today's spot exchange rate of the euro to forecast the euro's future exchange rate?

Market-based forecasting is based on fundamental relationships between economic variables and exchange rates.

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 one of the major reasons for MNCs to forecast exchange rates?

If speculators expect the spot rate of the Canadian dollar in 30 days to be than the 30-day forward rate on Canadian dollars, they will Canadian dollars forward and put pressure on the Canadian dollar forward rate.