Exam 9: Foreign Exchange Rate Determination

The principle focus of the IMF bailout efforts during the Asian financial crisis was:

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.

Critics of the balance of payments approach to exchange rate determination point to the emphasis on ________ of currency and capital rather than ________ of money or financial assets.

Short-term foreign exchange forecasts are often motivated by such activities as ________ whereas long-term forecasts are more likely motivated by ________.

The "tequila effect" is a slang term used to describe a form of financial panic called:

Slow economic growth and continued unemployment problems are common reasons for central banks to hold currency values down.

The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.

If the goal were to increase the value of a country's currency - to fight an depreciation of the domestic currency in exchange for foreign currency - the central bank would:

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.

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 more efficient the foreign exchange market is,the more likely it is that exchange rate movements are random walks.

A country wishing for its currency to fall in value,particularly when confronted with a continual appreciation of its value against major trading partner currencies,the central bank may work to lower real interest rates,reducing the returns to capital.

Prior to July 2,1997,the Thai government:

________ is the restriction of access to foreign currency by government.

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?

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

The large and liquid capital and currency markets follow many of the principles outlined by the different schools of thought on exchange rate determination (parity conditions,balance of payments approach,and asset approach)relatively well in the medium to long term.

Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?

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 single most important element of technical analysis is that future exchange rates are based on the current exchange rate.