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
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- Explain the random walk model for exchange rate forecasting. Can it be consistent with technical analysis?If the forward rate is expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then: a. the international Fisher effect (IFE) is refuted. b. the international Fisher effect (IFE) is supported. c. covered interest arbitrage is feasible. d. the average absolute error from forecasting would equal zero.In the single-index model represented by the equation ri = E(ri) + βiF + ei, the term ei represents A. the impact of anticipated firm-specific events on security i's return. B. the impact of changes in the market on security i's return. C. the impact of unanticipated macroeconomic events on security i's return. D. the impact of anticipated macroeconomic events on security i's return. E. the impact of unanticipated firm-specific events on security i's return.
- In the context of the Pastor-Stambaugh multifactor model (PSM), the relevant risk factors are the same as those in the Fama-French multifactor model plus an additional factor that represents __________. seasonality in security returns industrial production a liquidity premium expected inflationAccording to the efficient market school, do the best job at predicting future spot exchange rates.Two basic assumptions of technical analysis are that security prices adjust:a. Gradually to new information, and study of the economic environment provides an indication of future market movements. b. Rapidly to new information, and study of the economic environment provides an indication of future market movements.c. Rapidly to new information, and market prices are determined by the interaction between supply and demand.d. Gradually to new information, and prices are determined by the interaction between supply and demand.
- 8) What is the term ei in the single-index model equation ri = E(ri) + βiF + ei? A) the impact of unanticipated macroeconomic events on security i's return. B) the impact of unanticipated firm-specific events on security i's return. C) the impact of anticipated macroeconomic events on security i's return. D) the impact of anticipated firm-specific events on security i's return. E) the impact of changes in the market on security i's return.Which of the following instruments has the highest cost? Seleccione una: a. Fed Funds b. Commercial Paper c. Eurodollars d. Prime rateWhich of the following statements is (are) FALSE? Select one or more alternatives: Studies suggest that forward exchange rates are unbiased predictors for future spot exchange rates in internationally integrated capital markets. If arbitrageurs have sufficient capital to trade on risk-free opportunities instantaneously, we will see persistent deviations from covered interest parity. If both uncovered interest parity hypothesis and covered interest parity hypothesis hold, we can predict what the spot exchange rate will be in one year from today based on today's one-year forward exchange rate. If forward exchange rates deviate from synthetic forward rates defined by covered interest rate parity, there will be risk-free arbitrage opportunities in efficient capital markets.
- The feature of the general version of the arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple CAPM is the:a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.b. Superior measurement of the risk-free rate of return over historical time periods.c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.d. Use of several factors instead of a single market index to explain the risk–return relationship.Consider the monetary policy rule under financial frictions. If f >0 the prevailing market real interest rate will be the federal funds rate? equal to lower than higher thanAn efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of return