Exam 9: Foreign Exchange Rate Determination and Forecasting

Leading up to the Russian currency collapse of 1998, Russia followed a currency policy of managed float that allowed their currency to slide daily at a 1.5% per month rate.

________, traditionally referred to as chartists, focus on price and volume data to determine past trends that are expected to continue into the future.

The fall in the value of the domestic currency will sharply reduce the purchasing power of foreign tourists in the country whose currency values are falling.

A major U.S. multinational firm has forecast the euro/dollar rate to be €1.10/$ one year hence, and an exchange rate of $1.40 for the British pound (£)in the same time period. What does this imply the company's expected rate for the euro per pound to be in one year?

The authors refer to the practice of many Asian firms being largely controlled by families of groups related to the governing body of the country as:

Most theories of technical analysis differentiate fair value from market value.

Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.

The ________ is the Argentine currency unit.

The ________ provides a means to account for international cash flows in a standardized and systematic manner.

Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.

It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate. i.e., they are linked AND mutually determined.

Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future.

A currency board is:

The ________ approach to the determination of spot exchange rates hypothesizes that the most important factors are the relative real interest rate and a country's outlook for economic growth and profitability.

The authors claim that random events, institutional frictions, and technical factors may cause currency values to deviate significantly from their long-term fundamental path.

The asset market approach to forecasting assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations. These include all but which of the following choices?

Indirect intervention for domestic currency valuation typically uses tools of monetary policy as opposed to using tools of fiscal policy.

Examples of a business motivation for long-run exchange rate forecasts include all but which of the following?

If a central bank wishes to "defend its currency," it might follow an expansive monetary policy, which would drive real rates of interest up.

The ________ approach argues that equilibrium exchange rates are achieved when the net inflow of foreign exchange arising from current account activities is equal to the net outflow of foreign exchange arising from financial account activities.