All of the following typically tend to be short-term determinants of exchange rates between currency pairs, except? (a) stock market performance; (b) interest rate differentials; (c) market momentum; (d) relative inflation expectations in the pair of countries.
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All of the following typically tend to be short-term determinants of exchange rates between currency pairs, except? (a) stock market performance; (b) interest rate differentials; (c) market momentum; (d) relative inflation expectations in the pair of countries.
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- Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies. A. forward realignment arbitrage B. triangular arbitrage C. covered interest arbitrage D. locational arbitrageWhich of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the length of the forward exchange contract c. the current cross rate between the two currencies d. all are factors that may influence the spreadWhich of the following statements is CORRECT? Forward rate should provide more accurate forecasts for currencies in low-inflation countries than the spot rate. The technical forecasting is based on a wide range of data regarded as fundamental economic variables that determine exchange rates. In contrast, the fundamental forecasting focuses on a much smaller set of data, typically the historical exchange rates. O Technical forecasting model can reliably forecast long-run exchange rates. The spot rate is a useful Market-Based Forecast if the expected percentage change in the currency is zero over the forecast period. There are three main types of methods to forecast exchange rates: technical forecasting. fundamental forecasting, and market-based forecasting. These three methods always make the same directional prediction regarding whether a currency is appreciating or
- Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: Countries with lower inflation rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. O The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates O The statement is invalid, because the nominal interest rate is independent of the inflation rate. The currency of a country with a higher inflation rate than the U.S. inflation rate will over time against the dollar.Exchange rates fluctuate under both the fixed exchange rate and floatingexchange rate systems. What, then, is the difference between the two systems?Explain why the following statement is true or false: “The smaller and less liquid markets and currency markets frequently demonstrate behaviors that follow the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.”
- Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.Explain the implications of interest rate parity and purchasing power for U.S. dollar exchange rate against the Euro. Then, evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on (i) the short-term basis and (ii) the long terms basis.In the Mundell-Fleming model with floating, exchange rates, explain what happens to aggregate income, the exchange rate, and the trade balance when the money supply is reduced. What would happen if exchange rates were fixed rather than floating?
- Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of foreign currencies is referred to as a. an appreciation. b. a depreciation. c. a devaluation. d. a revaluation.Which of the following refers to exposure netting? 1. It is a strategy based on adjustments of the times of payments that are made in foreign currencies. 2. It is a practice which implies using swap contracts that have a fixed currency exchange rate. 3. It is a method of hedging transaction risk by offsetting exposure in one currency with exposure in the same or another similar currency. 4. It is a strategy that involves using two distinct assets with positively correlated price movements where the investor takes opposing positions in each investment in an attempt to reduce the risk of holding just one of the securities.Explain, why appreciation of exchange rate (E) today results in the increase of expected return from foreign currency deposits (investments), assuming expected exchange rate does not change?
