Question 1

Assume that the U.S. interest rate is 11 percent, while Australia's one-year interest rate is 12 percent. Assume interest rate parity holds. If the one-year forward rate of the Australian dollar was used to forecast the future spot rate, the forecast would reflect an expectation of:

Accepted Answer

A)  depreciation in the Australian dollar's value over the next year. 
B)  appreciation in the Australian dollar's value over the next year. 
C)  no change in the Australian dollar's value over the next year. 
D)  Information on future interest rates is needed to answer this question.

Question 2

If the foreign exchange market is ____ efficient, then historical and current exchange rate information is not useful for forecasting exchange rate movements.

Accepted Answer

A)  weak-form 
B)  semistrong-form 
C)  semiweak-form 
D)  weak-form AND semistrong-form

Question 3

​Which of the following forecasting techniques would be most likely to use relationships between economic factors and exchange rate movements to forecast the future exchange rate?

Accepted Answer

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

Exam 9: Forecasting Exchange Rates

Assume that the U.S. interest rate is 11 percent, while Australia's one-year interest rate is 12 percent. Assume interest rate parity holds. If the one-year forward rate of the Australian dollar was used to forecast the future spot rate, the forecast would reflect an expectation of:

If the foreign exchange market is ____ efficient, then historical and current exchange rate information is not useful for forecasting exchange rate movements.

​Which of the following forecasting techniques would be most likely to use relationships between economic factors and exchange rate movements to forecast the future exchange rate?

Which of the following forecasting techniques would be most likely to use relationships between economic factors and exchange rate movements to forecast the future exchange rate?