Multiple Choice
Assume a forecasting model uses inflation differentials and interest rate differentials to forecast the exchange rate. Assume the regression coefficient of the interest rate differential variable is -.5, and the coefficient of the inflation differential variable is .4. Which of the following is true?
A) The interest rate variable is inversely related to the exchange rate, and the inflation variable is directly (positively) related to the interest rate variable.
B) The interest rate variable is inversely related to the exchange rate, and the inflation variable is directly related to the exchange rate.
C) The interest rate variable is directly related to the exchange rate, and the inflation variable is directly related to the exchange rate.
D) The interest rate variable is directly related to the exchange rate, and the inflation variable is directly related to the interest rate variable.
Correct Answer:
Verified
Correct Answer:
Verified
Q18: If the one-year forward rate for the
Q19: The U.S. inflation rate is expected to
Q20: Foreign exchange markets appear to be strong-form
Q21: Assume that interest rate parity holds. The
Q22: According to the text, research generally supports
Q24: If today's exchange rate reflects all relevant
Q25: Inflation and interest rate differentials between the
Q26: Market-based forecasting involves the use of historical
Q27: The following regression model was estimated
Q28: If the pattern of currency values over