The answer holds that exchange rates should reflect

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The answer “holds that exchange rates should reflect the price differences of each and every product between countries” defines purchasing power parity. The answer “reflects the Big Mac Index” reflects a dimension of purchasing power parity. The answer “links the forward exchange rate of a foreign currency to its spot rate” roughly defines interest parity. @ No. The correct answer from the text: The Fisher Effect is the observation that a country's nominal interest rate (what a borrower actually has to pay for a loan) comprises both the inflation rate in that country and the real interest rate that borrowers are paying. The answer “holds that exchange rates should reflect the price differences of each and every product between countries” defines purchasing power parity. The answer “reflects the Big Mac Index” reflects a dimension of purchasing power parity. The answer “links the forward exchange rate of a foreign currency to its spot rate” roughly defines interest parity. REF: 8-3b 3. Market-based forecasting of exchange rates: a. is based on the premise that “the market knows best.”
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b. attempts to capture the collective knowledge of sophisticated speculators in the future spot rate of a currency. c. does not take into account government interventions. *d. All of the above e. None of the above ~ Yes. All of these answers are relevant to market-based forecasting. @ No. of these answers are relevant to market-based forecasting. REF: 8-4c 4. Of companies that will successfully and regularly retain the risk of currency fluctuation are those that: *a. are very large traders, sophisticated in international finance. b. are exporters or importers that have large exposure.
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