Question 1

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Accepted Answer

A) This can be viewed as support technical analysis. 
B) It can be rational for individual traders to use technical analysis-if enough traders use technical analysis the predictions based on it can become self-fulfilling to some extent, at least in the short-run. 
C) That can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. 
D) None of the above 
A) This can be viewed as support technical analysis. 
B) It can be rational for individual traders to use technical analysis-if enough traders use technical analysis the predictions based on it can become self-fulfilling to some extent, at least in the short-run. 
C) That can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. 
D) None of the above

Question 2

Researchers have found that the fundamental approach to exchange rate forecasting

Accepted Answer

A) outperforms the efficient market approach. 
B) fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. 
C) fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. 
D) outperforms the random walk model, but fails to more accurately forecast exchange rates than the forward rate model. 
A) outperforms the efficient market approach. 
B) fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. 
C) fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. 
D) outperforms the random walk model, but fails to more accurately forecast exchange rates than the forward rate model.

Question 3

There is (at least)one profitable arbitrage at these prices.What is it?

Accepted Answer

The answer of There is (at least)one profitable arbitrage at...

Question 4

Suppose that the one-year interest rate is 4.0 percent in the Italy,the spot exchange rate is $1.60/€,and the one-year forward exchange rate is $1.58/€.What must one-year interest rate be in the United States?

Accepted Answer

A) 2% 
B) 2.7% 
C) 5.32% 
D) None of the above 
A) 2% 
B) 2.7% 
C) 5.32% 
D) None of the above

Question 5

If the annual inflation rate is 5.5 percent in the United States and 4 percent in the U.K.,and the dollar depreciated against the pound by 3 percent,then the real exchange rate,assuming that PPP initially held,is

Accepted Answer

A) 0.07 
B) 0.9849 
C) -0.0198 
D) 4.5 
A) 0.07 
B) 0.9849 
C) -0.0198 
D) 4.5

Question 6

Suppose you observe a spot exchange rate of $2.00/£.If interest rates are 5% APR in the U.S.and 2% APR in the U.K.,what is the no-arbitrage 1-year forward rate?

Accepted Answer

A) £2.0588/$ 
B) $2.0588/£ 
C) £1.9429/$ 
D) $1.9429/£ 
A) £2.0588/$ 
B) $2.0588/£ 
C) £1.9429/$ 
D) $1.9429/£

Question 7

Please note that your answers are worth zero points if they do not include currency symbols ($, €)
-USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m,traded for dollars at the spot rate and invested at i$ = 4%.

Accepted Answer

Question 8

If the annual inflation rate is 2.5 percent in the United States and 4 percent in the U.K.,and the dollar appreciated against the pound by 1.5 percent,then the real exchange rate,assuming that PPP initially held,is _____.

Accepted Answer

A) parity 
B) 0.9710 
C) -0.0198 
D) 4.5 
A) parity 
B) 0.9710 
C) -0.0198 
D) 4.5

Question 9

According to the research in the accuracy of paid exchange rate forecasters,

Accepted Answer

A) as a group, they do not do a better job of forecasting the exchange rate than the forward rate does. 
B) the average forecaster is better than average at forecasting. 
C) the forecasters do a better job of predicting the future exchange rate than the market does. 
D) none of the above 
A) as a group, they do not do a better job of forecasting the exchange rate than the forward rate does. 
B) the average forecaster is better than average at forecasting. 
C) the forecasters do a better job of predicting the future exchange rate than the market does. 
D) none of the above

Question 10

Assume that you are a retail customer (i.e. you buy at the ask and sell at the bid).   Please note that your answers are worth zero points if they do not include currency symbols ($, €)
-USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer.

Accepted Answer

The answer of Assume that you are a retail customer...

Question 11

The moving average crossover rule

Accepted Answer

A) is a fundamental approach to forecasting exchange rates. 
B) states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is appreciating. 
C) states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is depreciating. 
D) none of the above 
A) is a fundamental approach to forecasting exchange rates. 
B) states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is appreciating. 
C) states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is depreciating. 
D) none of the above

Question 12

As of today,the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S.is 2% and 3% in the euro zone.What is the one-year forward rate that should prevail?

Accepted Answer

A) €1.00 = $1.2379 
B) €1.00 = $1.2623 
C) €1.00 = $0.9903 
D) $1.00 = €1.2623 
A) €1.00 = $1.2379 
B) €1.00 = $1.2623 
C) €1.00 = $0.9903 
D) $1.00 = €1.2623

Question 13

USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m,traded for dollars at the spot rate and invested at i$ = 2%.

Accepted Answer

Question 14

Suppose that you are the treasurer of IBM with an extra US$1,000,000 to invest for six months.You are considering the purchase of U.S.T-bills that yield 1.810% (that's a six month rate,not an annual rate by the way)and have a maturity of 26 weeks.The spot exchange rate is $1.00 = ¥100,and the six month forward rate is $1.00 = ¥110.What must the interest rate in Japan (on an investment of comparable risk)be before you are willing to consider investing there for six months?

Accepted Answer

A) 11.991% 
B) 1.12% 
C) 7.45% 
D) -7.45% 
A) 11.991% 
B) 1.12% 
C) 7.45% 
D) -7.45%

Question 15

If you could accurately and consistently forecast exchange rates

Accepted Answer

A) this would be a very handy thing as girls prefer guys with skills. 
B) you could impress your dates. 
C) you could make a great deal of money. 
D) all of the above 
A) this would be a very handy thing as girls prefer guys with skills. 
B) you could impress your dates. 
C) you could make a great deal of money. 
D) all of the above

Question 16

If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

The answer of If you borrowed €1,000,000 for one year,how...

Question 17

According to the technical approach,what matters in exchange rate determination is

Accepted Answer

A) the past behavior of exchange rates. 
B) the velocity of money. 
C) the future behavior of exchange rates. 
D) the beta. 
A) the past behavior of exchange rates. 
B) the velocity of money. 
C) the future behavior of exchange rates. 
D) the beta.

Question 18

The Fisher effect states that

Accepted Answer

A) any forward premium or discount is equal to the expected change in the exchange rate. 
B) any forward premium or discount is equal to the actual change in the exchange rate. 
C) the nominal interest rate differential reflects the expected change in the exchange rate. 
D) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. 
A) any forward premium or discount is equal to the expected change in the exchange rate. 
B) any forward premium or discount is equal to the actual change in the exchange rate. 
C) the nominal interest rate differential reflects the expected change in the exchange rate. 
D) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country.

Question 19

Studies of the accuracy of paid exchange rate forecasters

Accepted Answer

A) tend to support the view that "you get what you pay for". 
B) tend to support the view that forecasting is easy, at least with regard to major currencies like the euro and Japanese yen. 
C) tend to support the view that banks do their best forecasting with the yen. 
D) none of the above 
A) tend to support the view that "you get what you pay for". 
B) tend to support the view that forecasting is easy, at least with regard to major currencies like the euro and Japanese yen. 
C) tend to support the view that banks do their best forecasting with the yen. 
D) none of the above

Question 20

Assume that you are a retail customer   Please note that your answers are worth zero points if they do not include currency symbols ($, €)
-If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

Accepted Answer

The answer of Assume that you are a retail customer...

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Researchers have found that the fundamental approach to exchange rate forecasting

There is (at least)one profitable arbitrage at these prices.What is it?

Suppose that the one-year interest rate is 4.0 percent in the Italy,the spot exchange rate is $1.60/€,and the one-year forward exchange rate is $1.58/€.What must one-year interest rate be in the United States?

If the annual inflation rate is 5.5 percent in the United States and 4 percent in the U.K.,and the dollar depreciated against the pound by 3 percent,then the real exchange rate,assuming that PPP initially held,is

Suppose you observe a spot exchange rate of $2.00/£.If interest rates are 5% APR in the U.S.and 2% APR in the U.K.,what is the no-arbitrage 1-year forward rate?

If the annual inflation rate is 2.5 percent in the United States and 4 percent in the U.K.,and the dollar appreciated against the pound by 1.5 percent,then the real exchange rate,assuming that PPP initially held,is _____.

According to the research in the accuracy of paid exchange rate forecasters,

The moving average crossover rule

As of today,the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S.is 2% and 3% in the euro zone.What is the one-year forward rate that should prevail?

USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m,traded for dollars at the spot rate and invested at i_$ = 2%.

If you could accurately and consistently forecast exchange rates

If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

According to the technical approach,what matters in exchange rate determination is

The Fisher effect states that

Studies of the accuracy of paid exchange rate forecasters

Assume that you are a retail customer Please note that your answers are worth zero points if they do not include currency symbols ($, €) -If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 6: International Parity Relationships and Forecasting Foreign Exchange Rates

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Researchers have found that the fundamental approach to exchange rate forecasting

There is (at least)one profitable arbitrage at these prices.What is it?

Suppose that the one-year interest rate is 4.0 percent in the Italy,the spot exchange rate is $1.60/€,and the one-year forward exchange rate is $1.58/€.What must one-year interest rate be in the United States?

If the annual inflation rate is 5.5 percent in the United States and 4 percent in the U.K.,and the dollar depreciated against the pound by 3 percent,then the real exchange rate,assuming that PPP initially held,is

Suppose you observe a spot exchange rate of $2.00/£.If interest rates are 5% APR in the U.S.and 2% APR in the U.K.,what is the no-arbitrage 1-year forward rate?

If the annual inflation rate is 2.5 percent in the United States and 4 percent in the U.K.,and the dollar appreciated against the pound by 1.5 percent,then the real exchange rate,assuming that PPP initially held,is _____.

According to the research in the accuracy of paid exchange rate forecasters,

The moving average crossover rule

As of today,the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S.is 2% and 3% in the euro zone.What is the one-year forward rate that should prevail?

USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m,traded for dollars at the spot rate and invested at i$ = 2%.

If you could accurately and consistently forecast exchange rates

If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

According to the technical approach,what matters in exchange rate determination is

The Fisher effect states that

Studies of the accuracy of paid exchange rate forecasters

Assume that you are a retail customer Please note that your answers are worth zero points if they do not include currency symbols ($, €) -If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m,traded for dollars at the spot rate and invested at i_$ = 2%.