Exam 9: Forecasting Exchange Rates

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.

Using the inflation differential between two countries to forecast their exchange rates is not always accurate because of such factors as the uncertain timing of the impact of inflation and barriers to trade.

Foreign exchange markets are generally found to be at least ____ efficient.

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

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

Usually, fundamental forecasting is used for short-term forecasts, while technical forecasting is used for longer-term forecasts.

The one-year forward rate of the British pound is $1.55, while the current spot rate is $1.60. Based on the forward rate, what is the expected percentage change in the British pound over the next year?

If the forward rate was expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then:

Which of the following is true according to the text?

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

The following regression model was estimated to forecast the value of the Malaysian ringgit (MYR): MYR_t = a₀ + a₁INC_{t - 1} + a₂INF_{t - 1} + $\mu$ _t, Where MYR is the quarterly change in the ringgit, INF is the previous quarterly percentage change in the inflation differential, and INC is the previous quarterly percentage change in the income growth differential. Regression results indicate coefficients of a₀ = .005; a₁ = .4; and a₂ = .7. The most recent quarterly percentage change in the inflation differential is -5%, while the most recent quarterly percentage change in the income differential is 3%. Using this information, the forecast for the percentage change in the ringgit is:

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.

MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.

In market-based forecasting, a forward rate quoted for a specific date in the future can be used as the forecasted spot rate on that future date.

The following is not a limitation of technical forecasting:

Assume the following information: Given this information, the mean absolute forecast error as a percentage of the realized value is about:

Silicon Co. has forecasted the Canadian dollar for the most recent period to be $0.73. The realized value of the Canadian dollar in the most recent period was $0.80. Thus, the absolute forecast error as a percentage of the realized value was ____%.

If the pattern of currency values over time appears random, then technical forecasting is appropriate.

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

Foreign exchange markets appear to be strong-form efficient.