TB9 - Chapter 9 Forecasting Exchange Rates 1. Which of the...

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Unformatted text preview: Chapter 9 Forecasting Exchange Rates 1. Which of the following forecasting techniques would best represent the use of todays forward exchange rate to forecast the future exchange rate? A) fundamental forecasting. B) market-based forecasting. C) technical forecasting. D) mixed forecasting. ANSWER: B 2. Which of the following forecasting techniques would best represent sole use of todays spot exchange rate of the euro to forecast the euros future exchange rate? A) fundamental forecasting. B) market-based forecasting. C) technical forecasting. D) mixed forecasting. ANSWER: B 3. Which of the following forecasting techniques would best represent the use of relationships between economic factors and exchange rate movements to forecast the future exchange rate? A) fundamental forecasting. B) market-based forecasting. C) technical forecasting. D) mixed forecasting. ANSWER: A 4. Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euros future currency value? A) fundamental forecasting. B) market-based forecasting. C) technical forecasting. D) mixed forecasting. ANSWER: C 230 231 International Financial Management 5. If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have: A) underestimated the future exchange rates over time. B) overestimated the future exchange rates over time. C) forecasted future exchange rates accurately. D) forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating. ANSWER: B 6. According to the text, the analysis of currencies forecasted with use of the forward rate suggests that: A) currencies exhibited about the same mean forecast errors as a percent of the realized value. B) the Canadian dollar can be forecasted by U.S. firms with greater accuracy than other currencies. C) the Swiss franc can be forecasted by U.S. firms with greater accuracy than other currencies. D) none of these. ANSWER: B 7. Assume the following information: Predicted Value of Realized Value of Period New Zealand Dollar New Zealand Dollar 1 $.52 $.50 2 .54 .60 3 .44 .40 4 .51 .50 Given this information, the mean absolute forecast error as a percentage of the realized value is about: A) 1.5%. B) 26%. C) 6%. D) 6.5%. E) none of these. ANSWER: D SOLUTION: [($.52 $.50)/$.50 + ($.54 $.60)/$.60 + ($.44 $.40)/$.40 + ($.51 $.50)/$.50]/ 4 = [.04 + .10 + .10 + .02]/4 = .065 = 6.50% Chapter 9: Forecasting Exchange Rates 232 8. 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....
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TB9 - Chapter 9 Forecasting Exchange Rates 1. Which of the...

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