6Student: ___________________________________________________________________________ 1. An arbitrage is best defined as A. a legal condition imposed by the CFTC. B the act of simultaneously buying and selling the same or equivalent assets or commodities for the . purpose of making reasonable profits. C the act of simultaneously buying and selling the same or equivalent assets or commodities for the . purpose of making guaranteed profits. D. None of the above 2. Interest Rate Parity (IRP) is best defined as A. when a government brings its domestic interest rate in line with other major financial markets. B. when the central bank of a country brings its domestic interest rate in line with its major trading partners. C. an arbitrage condition that must hold when international financial markets are in equilibrium. D. None of the above 3. When Interest Rate Parity (IRP) does not hold A. there is usually a high degree of inflation in at least one country. B. the financial markets are in equilibrium. C. there are opportunities for covered interest arbitrage. D. both b and c 4. Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate? A. €1.5291/$ B. $1.5291/€ C. €1.4714/$ D. $1.4714/€ 5. Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate? A. €1.5291/$ B. $1.5291/€ C. €1.4714/$ D. $1.4714/€ 6. Suppose you observe a spot exchange rate of $2.00/£. If interest rates are 5% APR in the U.S. and 2% APR in the U.K., what is the no-arbitrage 1-year forward rate? A. £2.0588/$ B. $2.0588/£ C. £1.9429/$ D. $1.9429/£ 7. A formal statement of IRP is A. . B. . C. . D. 8. . Suppose that the one-year interest rate is 5.0 percent in the United States; the spot exchange rate is $1.20/ €; and the one-year forward exchange rate is $1.16/€. What must one-year interest rate be in the euro zone to avoid arbitrage? A. 5.0% B. 6.09% C. 8.62% D. None of the above 9. Suppose that the one-year interest rate is 3.0 percent in the Italy, the spot exchange rate is $1.20/€, and the one-year forward exchange rate is $1.18/€. What must one-year interest rate be in the United States? A. B. C. D. 1.2833% 1.0128% 4.75% None of the above 10. Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/€, and the one-year forward exchange rate is $1.58/€. What must one-year interest rate be in the United States? A. B. C. D. 2% 2.7% 5.32% None of the above 11. Covered Interest Arbitrage (CIA) activities will result in A. an unstable international financial markets. B. restoring equilibrium prices quickly. C. a disintermediation. D. no effect on the market. 12. Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that an arbitrageur can borrow up to $1,000,000. A. This is an example where interest rate parity holds. B. This is an example of an arbitrage opportunity; interest rate parity does NOT hold. C. This is an example of a Purchasing Power Parity violation and an arbitrage opportunity. D. None of the above 13. Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810% (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy? A. Take $1m, invest in U.S. T-bills. B Take $1m, translate into yen at the spot, invest in Japan, and repatriate your yen earnings back into . dollars at the spot rate prevailing in six months. C. Take $1m, translate into yen at the spot, invest in Japan, hedge with a short position in the forward contract. D. Take $1m, translate into yen at the forward rate, invest in Japan, hedge with a short position in the spot contract. 14. Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, and that the spot exchange rate is $1.60/€ and the forward exchange rate, with one-year maturity, is $1.58/€. Assume that an arbitrager can borrow up to $1,000,000 or €625,000. If an astute trader finds an arbitrage, what is the net cash flow in one year? A. $238.65 B. $14,000 C. $46,207 D. $7,000 15. A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The oneyear interest rate in the U.S. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%. The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00. Show how to realize a certain profit via covered interest arbitrage. A Borrow $1,000,000 at 2%. Trade $1,000,000 for €800,000; invest at i = 6%; translate proceeds back at € . forward rate of $1.20 = €1.00, gross proceeds = $1,017,600. BBorrow €800,000 at i = 6%; translate to dollars at the spot, invest in the U.S. at i = 2% for one year; € $ . translate €848,000 back into euro at the forward rate of $1.20 = €1.00. Net profit $2,400. CBorrow €800,000 at i = 6%; translate to dollars at the spot, invest in the U.S. at i = 2% for one year; € $ . translate €850,000 back into euro at the forward rate of $1.20 = €1.00. Net profit €2,000. D. Both c and b 16. Suppose that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the forward exchange rate, with one-year maturity, is $1.16/€. Assume that an arbitrager can borrow up to $1,000,000. If an astute trader finds an arbitrage, what is the net cash flow in one year? A. $10,690 B. $15,000 C. $46,207 D. $21,964.29 translate €850.45% 20. The one-year interest rate in the U. forward rate of $1.000 at i = 6%. The spot exchange rate is $1.20 = €1.S. € $ .00. B. A U. D. 1. Both c and b 19. Trade $1. The spot exchange rate is $1.00.20 = €1. and the six month forward rate is $1.810% (that's a six month rate.000.600.00. What must the interest rate in Japan (on an investment of comparable risk) be before you are willing to consider investing there for six months? A.400. € $ . invest in the U.00.000 at 2%.400.000 back into euro at the forward rate of $1.17. Net profit €2.S. invest in the U. at i = 2% for one year. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%.00 = ¥100.S. Net profit €2. gross proceeds = $1. gross proceeds = $1. Net profit $2.00.00 and the one-year forward exchange rate is $1.000.S. C.45% D.000 for €800.S. invest at i = 6%.000 back into euro at the forward rate of $1. translate to dollars at the spot.00. translate proceeds back at € .00. Show how to realize a certain euro-denominated profit via covered interest arbitrage. 11.000.S. CBorrow €800. A Borrow $1.00 and the one-year forward exchange rate is $1. Suppose that you are the treasurer of IBM with an extra U.000 at i = 6%. How high does the lending rate in the euro zone have to be before an arbitrageur would NOT consider borrowing dollars.000 back into euro at the forward rate of $1. at i = 2% for one year. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%.000. translate to dollars at the spot. not an annual rate by the way) and have a maturity of 26 weeks.991% B. 7. Trade $1.20 = €1.20 = €1.000 for €800.20 = €1.000 at i = 6%.S. The spot exchange rate is $1.25 = €1. $1. translate to dollars at the spot.000.600. invest in the U. translate €850. investing in the euro zone and hedging with a short position in the forward contract? A.00 = ¥110. forward rate of $1.017. Show how to realize a certain dollar profit via covered interest arbitrage. invest at i = 6%.12% C. Both c and b 18.000 for one year. You are considering the purchase of U.017.000 back into euro at the forward rate of $1.000. D. A Borrow $1.000.000 for one year.000 at 2%. € $ . at i = 2% for one year. BBorrow €800.000.-based currency dealer has good credit and can borrow $1. The bid-ask spreads are too wide for any profitable arbitrage when i€ > 0 3. -7.00.000. translate €848.09% None of the above .000. invest in the U. translate proceeds back at € .25 = €1.S.20 = €1. € $ .20 = €1. trading for euro at the spot.000 at i = 6%. BBorrow €800.000 to invest for six months. D.48% -2. CBorrow €800. An Italian currency dealer has good credit and can borrow €800. at i = 2% for one year. Net profit $2. The one-year interest rate in the U.S. translate €848. translate to dollars at the spot. T-bills that yield 1.20 = €1. 000 or €800. due to transactions costs. $1. B.99 = €1.11.1434/€ C.00 C.5 percent in Germany. borrow $1. Invest €990. The one-year forward exchange rate is $1. $1. uncovered IRP suggests that A.S. Hedge this with a forward contract on €1. $1. C. B.00 D. interest rate (i ↑) will result in $ A. C. the pound is expected to appreciate against the dollar by about 3 percent. both a and c .00. The one-year interest rate in the U. D. it may fail to hold due to transactions costs. Hedge . the dollar is expected to appreciate against the pound by about 3 percent. C. a lower spot exchange rate (expressed as foreign currency per U. D. What must the spot exchange rate be? A.045 at $1.10 at 5.044. B. due to capital controls imposed by governments. is i£ = 8 percent for the next year.5%. D. the transactions costs are too high.1547 = €1. the pound is expected to depreciate against the dollar by about 3 percent. C. it may not hold precisely all the time A.55 at $0. $1.000 at 6%.00. Trade for € at the ask spot rate $1. $1.00.0 percent in the United States and 3. none of the above 23. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%. due to asymmetric information. pressure from arbitrageurs should bring exchange rates and interest rates back into line. this with a forward contract on €1. like the bid ask spread.16/€. a stronger dollar.000 at 5%. Trade for $ at the bid spot rate $1.5%.00.2471 = €1.K. None of the above 26.00 = €1.S. If IRP fails to hold A.12/€ D.00.01 = €1.21. D. dollar).S.000 at 4. Although IRP tends to hold. what must the spot rate be to eliminate arbitrage opportunities? A. No. Suppose that the one-year interest rate is 5. If the interest rate in the U.000 for one year. A currency dealer has good credit and can borrow either $1. it may be due to government-imposed capital controls. None of the above 22. Invest $1. C. . Will an arbitrageur facing the following prices be able to make money? AYes. and the one-year forward exchange rate is $1. A higher U. B Yes.S.00 = €1. none of the above 25.00 B. both a and b D. all of the above 27. borrow €1. $1. is i$ = 5 percent for the next year and interest rate in the U. B.20 = €1.034.000.20 = €1. both a and c 24.1768/€ B. Receive $1. D. Consider a bank dealer who faces the following spot rates and interest rates. C. As of today.4676/€ 30. Trade for $ at the bid spot rate $1.2379 B.000. $1.00.9903 D.28.25 and the rates of inflation expected to prevail for the next year in the U.4662/€ D. the spot exchange rate is €1. $1.00. What should he set his 1year forward bid price at? A.2%. What should he set his 1year forward ask price at? A. What is the one-year forward rate that should prevail? A. borrow €1.4324/€ B. borrow $1. None of the above 31.5%. $1.00 = $1. $1. €1. A. its currency may appreciate against stable currencies.4358/€ C.300. $1. €1. D. its currency may be unaffected—it's difficult to say.1%. If a foreign county experiences a hyperinflation.00 = $0. €699. its currency will depreciate against stable currencies. Hedge . €1. Will an arbitrageur facing the following prices be able to make money? A Yes.000 at 3.43 = €1. Hedge this by going SHORT in forward (agree to sell € @ BID price of $1. $1. $1.000.4676/€ 29.70 at 3.4662/€ D.2623 C.44/€ in one year). none of the above 32.2623 .76. $1. No.65%.4324/€ B. Invest at 4.4358/€ C.S. $1. Consider a bank dealer who faces the following spot rates and interest rates. the transactions costs are too high. Cash flow in 1 year $237.40 = €1. B. Trade for € at the spot ask exchange rate $1. C.00 = $1. Invest .000 at 4.00 = €1. BYes.00 = $1. is 2% and 3% in the euro zone. this with a long position in a forward contract. S. varies considerably across the world in dollar terms. 4. all of the above 39.9710 C. haircuts. €1.5 37. B. B as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will . D. D.0198 D.K.5 percent in the United States and 4 percent in the U.6157 B.03 = €1.6157 = $1.5845 D. C. both a and b 34. A. D. 0. C. assuming that PPP initially held. housing. is A. -0. C..60 × 1. -0.07. .00 = $1. none of the above. is 2% and 3% in the euro zone. C.00 × 1.5 percent. the prices of standard commodity baskets in two countries are not related. B. then the real exchange rate..K. 0. A. 0. tariffs and quotas imposed on international trade can explain at least some of the evidence.0198.5 percent in the United States and 4 percent in the U. $1.33. nontradables. all of the above 40. Purchasing Power Parity (PPP) theory states that A. supports PPP. Examples include A.02 35. D. The price of a McDonald's Big Mac sandwich A. €1. substantial barriers to international commodity arbitrage exist. B. then the real exchange rate. is _____.60 and the rates of inflation expected to prevail for the next year in the U. and the dollar depreciated against the pound by 3 percent. assuming that PPP initially held. If the annual inflation rate is 2. B. C.9849. parity B. B.00 = $1. If the annual inflation rate is 5. 4. C. it will hold only if the composition of the consumption basket is the same across countries. both a and b D. Some commodities never enter into international trade. D.00 C. the spot exchange rate is €1. the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels. 36.5. €1.00 = $1. is about the same in the 120 countries that McDonalds does business in. As of today. Generally unfavorable evidence on PPP suggests that A. In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket. shipping costs can make it difficult to directly compare commodity prices. and the dollar appreciated against the pound by 1. none of the above 38. depreciate against stable currencies. it will hold only if the prices of the constituent commodities are equalized across countries in a given currency. What is the one-year forward rate that should prevail? A. 41. B. B. D. 43. Efficient market and Technical approaches. 45. 44. the nominal interest rate differential reflects the expected change in the exchange rate. The benefit to forecasting exchange rates A. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . you could make a great deal of money. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . B. Fundamental and Technical approaches. C. the nominal interest rate differential reflects the expected change in the exchange rate. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . C. (decrease) in the interest rate in the country. D. C. The main approaches to forecasting exchange rates are A. C. MNCs formulating international sourcing. B. all of the above 46. and are a vital concern for. If you could accurately and consistently forecast exchange rates A. (decrease) in the interest rate in the country. B. are greatest during periods of fixed exchange rates. all of the above . Efficient market. this would be a very handy thing as girls prefer guys with skills. C. any forward premium or discount is equal to the actual change in the exchange rate. any forward premium or discount is equal to the actual change in the exchange rate. you could impress your dates. Efficient market and Fundamental approaches. Fundamental. accrue to. The Fisher effect states that A. (decrease) in the interest rate in the country. The International Fisher Effect suggests that A. The Fisher effect can be written for the United States as: A. any forward premium or discount is equal to the actual change in the exchange rate. Option A Option B Option C Option D 42. are nonexistent now that the euro and dollar are the biggest game in town. production. D. any forward premium or discount is equal to the expected change in the exchange rate. C. the nominal interest rate differential reflects the expected change in the exchange rate. any forward premium or discount is equal to the expected change in the exchange rate. D. and Technical approaches. 47. financing and marketing strategies. B. any forward premium or discount is equal to the expected change in the exchange rate. C. Forward parity states that A. B. C. unless the forecaster has access to private information that is not yet reflected in the current exchange rate.48. CWhile researchers found it difficult to reject the random walk hypothesis for exchange rates on . C.g. B. today's exchange rate. none of the above 53. empirical grounds. it is difficult to outperform the market-based forecasts . markets tend to evolve to low transactions costs and speedy execution of orders. both a and b D. grounds. C. empirical grounds. BWhile researchers found it easy to reject the random walk hypothesis for exchange rates on empirical . exchange rates) fully reflect all the available and relevant information. D. there is no theoretical reason why exchange rates should follow a pure random walk. both b and c 52. there are strong theoretical reasons why exchange rates should follow a pure random walk. B. The random walk hypothesis suggests that A. none of the above . Cgiven the relative inefficiency of foreign exchange markets. C. the best predictor of future exchange rates is the forward rate Ft = E(St + 1|It). the fundamentalists tend to believe that "history will repeat itself" is the best model. D. None of the above 51. D. D. Which of the following is a true statement? AWhile researchers found it difficult to reject the random walk hypothesis for exchange rates on . One implication of the random walk hypothesis is Agiven the efficiency of foreign exchange markets. Good. Bgiven the efficiency of foreign exchange markets. B. inexpensive. If the exchange rate follows a random walk A. rate that will prevail six months from today). current asset prices (e. St = E(St + 1).g. there are compelling theoretical reasons why exchange rates should follow a pure random walk. the future exchange rate is unpredictable. esoteric fundamental models that take an econometrician to use and no one can explain. D. unless the forecaster has access to private information that is already reflected in the current exchange rate. None of the above 54. the future exchange rate is expected to be the same as the current exchange rate. none of the above 49. inflation rates and so forth. it is difficult to outperform the technical . it is difficult to outperform the market-based forecasts . the six-month forward rate is a pretty good predictor of the spot . the technicians tend to use "cause and effect" models. both a and b 50. C. forecasts unless the forecaster has access to private information that is not yet reflected in the current futures exchange rate. current exchange rates cannot be explained by such fundamental forces as money supplies. and fairly reliable predictors of future exchange rates include A. B. both a and b are consistent with the efficient market hypothesis. D. With regard to fundamental forecasting versus technical forecasting of exchange rates A. the best predictor of the future exchange rate is the current forward rate. The Efficient Markets Hypothesis states A. B current forward exchange rates (e. the best predictor of the future exchange rate is the current exchange rate. Academic studies tend to discredit the validity of technical analysis. the beta. tend to support the view that "you get what you pay for". Which of the following issues are difficulties for the fundamental approach to exchange rate forecasting? AOne has to forecast a set of independent variables to forecast the exchange rates. Researchers have found that the fundamental approach to exchange rate forecasting A. B. The model itself can be wrong. D. but fails to more accurately forecast exchange rates than the forward rate model. C.55. D. at least with regard to major currencies like the euro and Japanese yen. both b and c 56. None of the above 59. BThe parameter values. D. at least in the short-run. C. none of the above 60. that the foreign currency is depreciating. the velocity of money. B states that a crossover of the short-term moving average above the long-term moving average signals . C. tend to support the view that banks do their best forecasting with the yen. 58. The moving average crossover rule A. that is the α's and β's. This can be viewed as support technical analysis. the future behavior of exchange rates.That can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. tend to support the view that forecasting is easy. B. fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. B. D. that are estimated using historical data may change over . none of the above . will certainly be subject to errors and may not be necessarily easier than forecasting the latter. All of the above 57. time because of changes in government policies and/or the underlying structure of the economy. D. Forecasting the former . the past behavior of exchange rates. C. Studies of the accuracy of paid exchange rate forecasters A. C states that a crossover of the short-term moving average above the long-term moving average signals . that the foreign currency is appreciating. outperforms the random walk model. substituting the estimated values of the independent variables into the estimated structural model to generate the forecast D. looking at charts of the exchange rate and extrapolating the patterns into the future B. what matters in exchange rate determination A. Which of the following is true? A. D. According to the technical approach. is a fundamental approach to forecasting exchange rates. outperforms the efficient market approach. estimation of a structural model C. Either difficulty can diminish the accuracy of forecasts even if the model is correct. C. analysis the predictions based on it can become self-fulfilling to some extent. 61. BIt can be rational for individual traders to use technical analysis—if enough traders use technical . fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. Generating exchange rate forecasts with the fundamental approach involves A. 000 for one year. none of the above. According to the monetary approach. B. the relative money supplies. the average forecaster is better than average at forecasting. you can make more money selling forecasts than you can following forecasts. C. . Please note that your answers are worth zero points if they do not include currency symbols ($. . A.62. . the forecasters do a better job of predicting the future exchange rates than the market does. B. 64. they do not do a better job of forecasting the exchange rate than the forward rate does. D. C. how much money would you owe at maturity? . the exchange rate can be expressed as A.000. €) 66. as a group. the forecasters do a better job of predicting the future exchange rate than the market does. B. none of the above. how much money would you owe at maturity? 67. C. If you borrowed €1. According to the research in the accuracy of paid exchange rate forecasters.000 for one year. B. the average forecaster is better than average at forecasting. the relative national outputs. D. According to the monetary approach. D. D. none of the above 63. A. the relative velocities of monies. According to the research in the accuracy of paid exchange rate forecasters. If you borrowed $1. C. what matters in exchange rate determination are A.000. all of the above 65. 72. how many USD will you get? 70. USING YOUR PREVIOUS ANSWERS and a bit more work. how many € do you receive? 69. There is (at least) one profitable arbitrage at these prices. €) .000. 71. traded for dollars at the spot rate and invested at i$ = 2%.68.000 and traded it for USD at the spot rate. If you had €1.000.000 and traded for euro at the spot rate. USING YOUR PREVIOUS ANSWERS and a bit more work. If you had borrowed $1. find the 1-year forward exchange rate in $ per € that satisfies IRP from the perspective of a customer that borrowed $1m traded for € at the spot and invested at i€ = 4%. find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m. What is it? Please note that your answers are worth zero points if they do not include currency symbols ($. how much money would you owe at maturity? 75.000. 78. traded for dollars at the spot rate and invested at i$ = 4%. find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m. how many € do you receive? 76. find the 1-year forward exchange rate in $ per € that satisfies IRP from the perspective of a customer that borrowed $1m traded for € at the spot and invested at i€ = 3%. how much money would you owe at maturity? 74.000 and traded for euro at the spot rate. If you borrowed $1.000 for one year.000.73.000 and traded it for USD at the spot rate. USING YOUR PREVIOUS ANSWERS and a bit more work. USING YOUR PREVIOUS ANSWERS and a bit more work.000. If you had borrowed $1. If you borrowed €1. If you had €1. how many USD will you get? 77.000.000 for one year. . If you borrowed $1. If you had €1. There is (at least) one profitable arbitrage at these prices.000 and traded it for USD at the spot rate. €) 80. What is it? Assume that you are a retail customer (i.79.000 and traded for euro at the spot rate.000.000 for one year. you buy as the ask and sell at the bid). If you had borrowed $1. how much money would you owe at maturity? 81.000. If you borrowed €1.000 for one year. how many € do you receive? 83. how much money would you owe at maturity? 82. how many USD will you get? .e.000. Please note that your answers are worth zero points if they do not include currency symbols ($.000. 000 for one year. What is it? Assume that you are a retail customer. find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer. USING YOUR PREVIOUS ANSWERS and a bit more work. There is (at least) one profitable arbitrage at these prices.000. €) 87.000 for one year. 86. If you borrowed €1. If you borrowed $1. how much money would you owe at maturity? 88.84. USING YOUR PREVIOUS ANSWERS and a bit more work. Please note that your answers are worth zero points if they do not include currency symbols ($.000. how much money would you owe at maturity? . 85. find the 1-year forward BID exchange rate in $ per € that satisfies IRP from the perspective of a customer. There is (at least) one profitable arbitrage at these prices. find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer. 93.000. €) .000 and traded it for USD at the spot rate. If you had €1. If you had borrowed $1.000 and traded for euro at the spot rate. USING YOUR PREVIOUS ANSWERS and a bit more work. Please note that your answers are worth zero points if they do not include currency symbols ($.89.000. how many € do you receive? 90. USING YOUR PREVIOUS ANSWERS and a bit more work. 92. What is it? Assume that you are a retail customer. how many USD will you get? 91. find the 1-year forward BID exchange rate in $ per € that that satisfies IRP from the perspective of a customer. 000. .000 for one year.000. how much money would you owe at maturity? 96.000. 99. find the 1-year forward BID exchange rate in $ per € that that satisfies IRP from the perspective of a customer.000 and traded for euro at the spot rate.000. how much money would you owe at maturity? 95. find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer. USING YOUR PREVIOUS ANSWERS and a bit more work. how many € do you receive? 97.94.000 and traded it for USD at the spot rate. If you borrowed $1. USING YOUR PREVIOUS ANSWERS and a bit more work.000 for one year. If you had borrowed $1. If you borrowed €1. how many USD will you get? 98. If you had €1. What is it? .There is (at least) one (smallish) profitable arbitrage at these prices.100. 9429/$ D. D. £1.Chapter 06 #5 Topic: Interest Rate Parity 6. When Interest Rate Parity (IRP) does not hold A. when the central bank of a country brings its domestic interest rate in line with its major trading partners.6 Key 1. Suppose you observe a spot exchange rate of $2.Chapter 06 #2 Topic: Interest Rate Parity 3. $2. when a government brings its domestic interest rate in line with other major financial markets. purpose of making guaranteed profits. and 3% APR in the euro zone. £2.5291/€ C.S. there are opportunities for covered interest arbitrage. $1. what is the no-arbitrage 1-year forward rate? A. B.5291/$ B.4714/€ Eun . the act of simultaneously buying and selling the same or equivalent assets or commodities for the C .4714/$ D. Suppose you observe a spot exchange rate of $1. $1.5291/€ C. Interest Rate Parity (IRP) is best defined as A.9429/£ Eun . If interest rates are 5% APR in the U. C.Chapter 06 #1 Topic: Interest Rate Parity 2.4714/€ Eun .00/£. the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making reasonable profits.50/€. None of the above Eun . If interest rates are 5% APR in the U.S. and 2% APR in the U. there is usually a high degree of inflation in at least one country.0588/£ C.Chapter 06 #3 Topic: Interest Rate Parity 4. what is the no-arbitrage 1-year forward rate? A. the financial markets are in equilibrium. $1.4714/$ D. B.50/€. and 5% APR in the euro zone. $1. what is the no-arbitrage 1-year forward rate? A.Chapter 06 #6 Topic: Interest Rate Parity . €1. €1. $1. If interest rates are 3% APR in the U. D.0588/$ B. C.K.5291/$ B. Suppose you observe a spot exchange rate of $1. €1. an arbitrage condition that must hold when international financial markets are in equilibrium. both b and c Eun .. D. An arbitrage is best defined as A. €1. a legal condition imposed by the CFTC.Chapter 06 #4 Topic: Interest Rate Parity 5. None of the above Eun . B.S. .20/€.0 percent in the United States. What must one-year interest rate be in the euro zone to avoid arbitrage? A. None of the above Eun . Suppose that the one-year interest rate is 4.Chapter 06 #11 Topic: Covered Interest Arbitrage .20/€. 6.Chapter 06 #9 Topic: Covered Interest Arbitrage 10.16/€. What must one-year interest rate be in the United States? A. 1. C. 5.32% D.0128% C. Covered Interest Arbitrage (CIA) activities will result in A.7.Chapter 06 #7 Topic: Interest Rate Parity 8. 2% B.09% C. the spot exchange rate is $1.75% D. What must one-year interest rate be in the United States? A. an unstable international financial markets. None of the above Eun . and the one-year forward exchange rate is $1. C. 2. 4. Suppose that the one-year interest rate is 5. 5. and the one-year forward exchange rate is $1.7% C. 8. None of the above Eun . the spot exchange rate is $1. a disintermediation. .0 percent in the Italy.Chapter 06 #8 Topic: Covered Interest Arbitrage 9. and the one-year forward exchange rate is $1.2833% B. the spot exchange rate is $1.58/€. Eun . .Chapter 06 #10 Topic: Covered Interest Arbitrage 11. A formal statement of IRP is A. B. restoring equilibrium prices quickly.0% B.18/€.62% D.0 percent in the Italy. Eun . Suppose that the one-year interest rate is 3. B. 1. .60/€. D. no effect on the market. D. 0 percent in the United States and 4 percent in Germany.000. This is an example of a Purchasing Power Parity violation and an arbitrage opportunity. Take $1m. invest in the U.S. dollars at the spot rate prevailing in six months. hedge with a short position in the forward contract.00.017. D.400. Trade $1.000 to invest for six months. What is your strategy? A.000. Assume that an arbitrageur can borrow up to $1. B Take $1m. C.65 B. BBorrow €800.000. B. and the six month forward rate is $1.000 at i = 6%. is $1. The one-year interest rate in the U.20 = €1. $7.810% (that's a six month rate. A. This is an example of an arbitrage opportunity. T-bills that yield 1.20 = €1. interest rate parity does NOT hold. Eun . CBorrow €800. Net profit $2.20 = €1. You are considering the purchase of U. what is the net cash flow in one year? A. Net profit €2. translate proceeds € . hedge with a short position in the spot contract.20 = €1.00 = ¥100.Chapter 06 #14 Topic: Covered Interest Arbitrage 15. This is an example where interest rate parity holds. and that the spot exchange rate is $1. translate into yen at the spot. invest in Japan.000 at 2%. invest in the U. Suppose that the one-year interest rate is 5. at i = 2% for one € $ . D.000 or €800.12/€ and the one-year forward exchange rate. A Borrow $1. translate to dollars at the spot.000.Chapter 06 #13 Topic: Covered Interest Arbitrage 14.S. $14.S. The spot exchange rate is $1. is $1. year.207 D. C.25 = €1. Take $1m. translate into yen at the forward rate. Both c and b Eun . The interest rate in Japan (on an investment of comparable risk) is 13 percent. back at forward rate of $1.000 back into euro at the forward rate of $1. translate to dollars at the spot.000 at i = 6%.16/€.000 or €625. The spot exchange rate is $1. T-bills. Suppose that you are the treasurer of IBM with an extra U. D. and that the spot exchange rate is $1. Take $1m.000. not an annual rate by the way) and have a maturity of 26 weeks.0 percent in the United States and 3.58/ €. $238.00.00 and the one-year forward exchange rate is $1. translate €848.S.000 Eun . If an astute trader finds an arbitrage. year. Assume that an arbitrager can borrow up to $1.000 C. at i = 2% for one € $ . invest in U.12. invest at i = 6%.Chapter 06 #15 Topic: Covered Interest Arbitrage . Suppose that the annual interest rate is 2. gross proceeds = $1.000. None of the above Eun . Show how to realize a certain profit via covered interest arbitrage.000. A currency dealer has good credit and can borrow either $1. with one-year maturity.00 = ¥110.600.000.000 back into euro at the forward rate of $1.000. translate €850. translate into yen at the spot.000.5 percent in Germany. invest in Japan.60/€ and the forward exchange rate. and repatriate your yen earnings back into . is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%.00.000 for one year.00. $46. $1.Chapter 06 #12 Topic: Covered Interest Arbitrage 13.S.S.000 for €800. invest in Japan. invest at i = 6%. Net profit €2. invest in the U.00.400.000 for €800. A Borrow $1. and the six month forward rate is $1. what is the net cash flow in one year? A. Net profit $2.45% D.00. Trade $1.12% C. and that the spot exchange rate is $1.20 = €1.690 B. translate €850. Trade $1.S.S.12/€ and the forward exchange rate. gross proceeds = $1. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%.16.00 and the one-year forward exchange rate is $1.000 for €800. Show how to realize a certain dollar profit via covered interest arbitrage.00.20 = €1. You are considering the purchase of U. translate proceeds € .000.00. year.000.000.0 percent in the United States and 3. back at forward rate of $1.600. The one-year interest rate in the U.00. Both c and b Eun .20 = €1. 7.000. translate to dollars at the spot. at i = 2% for one € $ . Suppose that you are the treasurer of IBM with an extra U. at i = 2% for one € $ . The spot exchange rate is $1. translate to dollars at the spot.400. What must the interest rate in Japan (on an investment of comparable risk) be before you are willing to consider investing there for six months? A. The spot exchange rate is $1. BBorrow €800. $21. CBorrow €800. not an annual rate by the way) and have a maturity of 26 weeks.Chapter 06 #19 Topic: Covered Interest Arbitrage .000.000.Chapter 06 #16 Topic: Covered Interest Arbitrage 17. $10.000 to invest for six months. invest at i = 6%.000. 11. 1. A Borrow $1.000.000 C.-based currency dealer has good credit and can borrow $1. invest in the U.000. Suppose that the annual interest rate is 5. year.600. translate to dollars at the spot. Assume that an arbitrager can borrow up to $1.00 = ¥110. Net profit $2.000 back into euro at the forward rate of $1.20 = €1.25 = €1.20 = €1. translate €850. at i = 2% for one € $ . $1. year. Show how to realize a certain euro-denominated profit via covered interest arbitrage.S.S.29 Eun .S. The spot exchange rate is $1.000. A U.991% B. $46. translate to dollars at the spot.207 D.000 at 2%.00 = ¥100.25 = €1. invest in the U. back at forward rate of $1.00. Both c and b Eun .000 at 2%.20 = €1. -7.000 for one year. translate €848.964. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%. with one-year maturity. CBorrow €800.00 and the one-year forward exchange rate is $1.S.810% (that's a six month rate. BBorrow €800.000.000 at i = 6%. gross proceeds = $1. at i = 2% for one € $ .S.000 for one year.5 percent in Germany. If an astute trader finds an arbitrage.20 = €1.45% Eun .000.000 at i = 6%. The one-year interest rate in the U.000 at i = 6%. D. translate proceeds € .000 at i = 6%.S.000 back into euro at the forward rate of $1.S.017.017.16/€. D. translate €848. T-bills that yield 1. An Italian currency dealer has good credit and can borrow €800.Chapter 06 #18 Topic: Covered Interest Arbitrage 19.20 = €1.Chapter 06 #17 Topic: Covered Interest Arbitrage 18.000 back into euro at the forward rate of $1.000 back into euro at the forward rate of $1. Net profit €2. $15. is $1.00. year. invest in the U.00. Suppose that the one-year interest rate is 5. $1. the dollar is expected to appreciate against the pound by about 3 percent. the pound is expected to appreciate against the dollar by about 3 percent. A higher U. is i$ = 5 percent for the next year and interest rate in the U. $1.00 D. The one-year interest rate in the U.S.K.S.2471 = €1. interest rate (i$ ↑) will result in A. $1. $1. C. none of the above Eun . a stronger dollar.00 C. A currency dealer has good credit and can borrow either $1. $1. is i£ = 8 percent for the next year.20 = €1. B.0 percent in the United States and 3. and the one-year forward exchange rate is $1. The bid-ask spreads are too wide for any profitable arbitrage when i€ > 0 3. trading for euro at the spot. D. B.5 percent in Germany. How high does the lending rate in the euro zone have to be before an arbitrageur would NOT consider borrowing dollars. If the interest rate in the U.1768/€ B. The one-year forward exchange rate is $1. what must the spot rate be to eliminate arbitrage opportunities? A.Chapter 06 #20 Topic: Covered Interest Arbitrage 21. both a and c Eun .Chapter 06 #22 Topic: Interest Rate Parity and Exchange Rate Determination 23.1547 = €1.12/€ D. dollar). C. the pound is expected to depreciate against the dollar by about 3 percent.S. uncovered IRP suggests that A. C.Chapter 06 #24 Topic: Interest Rate Parity and Exchange Rate Determination .16/€. What must the spot exchange rate be? A. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%. $1. none of the above Eun .20 = €1.000 or €800.000 for one year. D.48% -2. a lower spot exchange rate (expressed as foreign currency per U.00 B.00. B.Chapter 06 #23 Topic: Interest Rate Parity and Exchange Rate Determination 24.1434/€ C.Chapter 06 #21 Topic: Interest Rate Parity and Exchange Rate Determination 22. None of the above Eun .20. investing in the euro zone and hedging with a short position in the forward contract? A. both a and b D.000.S.09% None of the above Eun . 00. No. it may fail to hold due to transactions costs.4358/€ C. Trade for € at the ask spot rate $1. B. Invest $1.Chapter 06 #27 Topic: Reasons for Deviations from Interest Rate Parity 28.00. . C. it may not hold precisely all the time A. Invest €990. the transactions costs are too high.4662/€ D. it may be due to government-imposed capital controls. D. $1. B Yes.01 = €1. D.4324/€ B.5%. like the bid ask spread. borrow €1. None of the above Eun .11. Although IRP tends to hold. Will an arbitrageur facing the following prices be able to make money? AYes. C. pressure from arbitrageurs should bring exchange rates and interest rates back into line. Receive $1. Consider a bank dealer who faces the following spot rates and interest rates.000 at 5%.Chapter 06 #29 Topic: Reasons for Deviations from Interest Rate Parity . What should he set his 1year forward bid price at? A. C. . If IRP fails to hold A.Chapter 06 #28 Topic: Reasons for Deviations from Interest Rate Parity 29.99 = €1. borrow $1. due to asymmetric information.4662/€ D.044. Hedge this with a forward contract on €1.00. $1. $1.Chapter 06 #25 Topic: Reasons for Deviations from Interest Rate Parity 26.034.10 at 5.4324/€ B. $1.55 at $0.4676/€ Eun . due to transactions costs.Chapter 06 #26 Topic: Reasons for Deviations from Interest Rate Parity 27. B. D.045 at $1.000 at 6%. both a and c Eun .00.00 = €1. Trade for $ at the bid spot rate $1.000 at 4.4358/€ C. $1.00 = €1. $1.4676/€ Eun . all of the above Eun . due to capital controls imposed by governments. $1. Hedge this with a forward contract on €1.5%. Consider a bank dealer who faces the following spot rates and interest rates. What should he set his 1year forward ask price at? A. $1.25. 5%. the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.000 at 4.Chapter 06 #32 Topic: Purchasing Power Parity 33.00 = $1. $1.00 = $0.5845 D. the prices of standard commodity baskets in two countries are not related.00 = $1. is 2% and 3% in the euro zone. Invest .S.00 = $1. Trade for $ at the bid spot rate $1.6157 B. is 2% and 3% in the euro zone. D. the spot exchange rate is €1.30.60 and the rates of inflation expected to prevail for the next year in the U. What is the one-year forward rate that should prevail? A. As of today. borrow €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.40 = €1. C. Hedge this with a long position in a forward contract.70 at 3. What is the one-year forward rate that should prevail? A. Purchasing Power Parity (PPP) theory states that A. . Will an arbitrageur facing the following prices be able to make money? A Yes.000 at 3. €1. Invest at 4.00 × 1. borrow $1.44/ € in one year). None of the above Eun . D. €1.6157 = $1. B. its currency may be unaffected—it's difficult to say. its currency will depreciate against stable currencies.Chapter 06 #34 Topic: Purchasing Power Parity .00 = $1. $1.2%.2379 B.Chapter 06 #30 Topic: Reasons for Deviations from Interest Rate Parity 31. Hedge this by going SHORT in forward (agree to sell € @ BID price of $1. €1. €1. No.300. €1. none of the above Eun .00.76.00 C.000.00.2623 C. D.03 = €1.2623 Eun . B. C. If a foreign county experiences a hyperinflation.S. €1. As of today. C. the transactions costs are too high. its currency may appreciate against stable currencies. €699.Chapter 06 #33 Topic: Purchasing Power Parity 34.00 = €1.02 Eun . as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.65%. BYes.1%.00 = $1. A.60 × 1.Chapter 06 #31 Topic: Purchasing Power Parity 32. Trade for € at the spot ask exchange rate $1.43 = €1.9903 D. the spot exchange rate is €1. both a and b Eun . Cash flow in 1 year $237.000. Eun .. is about the same in the 120 countries that McDonalds does business in. it will hold only if the composition of the consumption basket is the same across countries. Some commodities never enter into international trade. B. and the dollar depreciated against the pound by 3 percent. In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket.9710 C.5 percent in the United States and 4 percent in the U.5. housing. both a and b D. D. varies considerably across the world in dollar terms.5 percent in the United States and 4 percent in the U. A. B. nontradables. The price of a McDonald's Big Mac sandwich A.Chapter 06 #37 Topic: Evidence on Purchasing Power Parity 38. tariffs and quotas imposed on international trade can explain at least some of the evidence.Chapter 06 #39 Topic: Evidence on Purchasing Power Parity 40. C. 4. assuming that PPP initially held. parity B. D. all of the above Eun . 0.K. 4.Chapter 06 #36 Topic: PPP Deviations and the Real Exchange Rate 37.07. assuming that PPP initially held. haircuts. Examples include A. and the dollar appreciated against the pound by 1.9849. If the annual inflation rate is 5. supports PPP.35.Chapter 06 #40 Topic: Evidence on Purchasing Power Parity ..Chapter 06 #38 Topic: Evidence on Purchasing Power Parity 39. B.5 Eun . substantial barriers to international commodity arbitrage exist. D. A. If the annual inflation rate is 2. B. C. Generally unfavorable evidence on PPP suggests that A. it will hold only if the prices of the constituent commodities are equalized across countries in a given currency. shipping costs can make it difficult to directly compare commodity prices. is A. is _____. C. none of the above Eun . none of the above.0198 D. 0. B. all of the above Eun . C. 0.K. -0. Eun .0198. then the real exchange rate.5 percent.Chapter 06 #35 Topic: PPP Deviations and the Real Exchange Rate 36. then the real exchange rate. C. D. -0. Eun . any forward premium or discount is equal to the actual change in the exchange rate. If you could accurately and consistently forecast exchange rates A. any forward premium or discount is equal to the actual change in the exchange rate. The main approaches to forecasting exchange rates are A.Chapter 06 #42 Topic: Fisher Effects 43. Option A Option B Option C Option D Eun . Efficient market and Fundamental approaches. B. B. C.Chapter 06 #43 Topic: Fisher Effects 44. any forward premium or discount is equal to the expected change in the exchange rate. C. Eun . B.Chapter 06 #41 Topic: Fisher Effects 42. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . the nominal interest rate differential reflects the expected change in the exchange rate. Eun . the nominal interest rate differential reflects the expected change in the exchange rate. Efficient market. (decrease) in the interest rate in the country. any forward premium or discount is equal to the expected change in the exchange rate. you could make a great deal of money.Chapter 06 #46 Topic: Forecasting Exchange Rates . B. Efficient market and Technical approaches. (decrease) in the interest rate in the country. The International Fisher Effect suggests that A. any forward premium or discount is equal to the expected change in the exchange rate. you could impress your dates. D.Chapter 06 #44 Topic: Fisher Effects 45. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . C. Eun . any forward premium or discount is equal to the actual change in the exchange rate. Fundamental. C. D an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase . The Fisher effect states that A. and Technical approaches. C. B. (decrease) in the interest rate in the country. B. The Fisher effect can be written for the United States as: A. Forward parity states that A. D. all of the above Eun . C. D. the nominal interest rate differential reflects the expected change in the exchange rate.41. Fundamental and Technical approaches. this would be a very handy thing as girls prefer guys with skills.Chapter 06 #45 Topic: Forecasting Exchange Rates 46. are nonexistent now that the euro and dollar are the biggest game in town. D. D. it is difficult to outperform the technical . today's exchange rate. inexpensive. the best predictor of future exchange rates is the forward rate Ft = E(St + 1|It). none of the above Eun . the six-month forward rate is a pretty good predictor of the spot . Bgiven the efficiency of foreign exchange markets. there are strong theoretical reasons why exchange rates should follow a pure random walk. forecasts unless the forecaster has access to private information that is not yet reflected in the current futures exchange rate. Good. current asset prices (e. C. and fairly reliable predictors of future exchange rates include A. None of the above Eun . all of the above Eun . the future exchange rate is expected to be the same as the current exchange rate. D. there is no theoretical reason why exchange rates should follow a pure random walk. If the exchange rate follows a random walk A. both b and c Eun . financing and marketing strategies. empirical grounds. C.Chapter 06 #51 Topic: Efficient Market Approach 52. D. empirical grounds. rate that will prevail six months from today). it is difficult to outperform the market-based . both a and b Eun .Chapter 06 #50 Topic: Efficient Market Approach 51. forecasts unless the forecaster has access to private information that is already reflected in the current exchange rate.g. inflation rates and so forth. Which of the following is a true statement? AWhile researchers found it difficult to reject the random walk hypothesis for exchange rates on .Chapter 06 #47 Topic: Forecasting Exchange Rates 48. there are compelling theoretical reasons why exchange rates should follow a pure random walk. markets tend to evolve to low transactions costs and speedy execution of orders. Cgiven the relative inefficiency of foreign exchange markets.Chapter 06 #52 Topic: Efficient Market Approach . B. C. MNCs formulating international sourcing. CWhile researchers found it difficult to reject the random walk hypothesis for exchange rates on . St = E(St + 1). exchange rates) fully reflect all the available and relevant information. B. none of the above Eun .g.47. C. The benefit to forecasting exchange rates A. current exchange rates cannot be explained by such fundamental forces as money supplies. D. grounds. esoteric fundamental models that take an econometrician to use and no one can explain. One implication of the random walk hypothesis is Agiven the efficiency of foreign exchange markets. forecasts unless the forecaster has access to private information that is not yet reflected in the current exchange rate. The Efficient Markets Hypothesis states A. D. and are a vital concern for. B current forward exchange rates (e. accrue to.Chapter 06 #48 Topic: Efficient Market Approach 49. it is difficult to outperform the market-based . B. are greatest during periods of fixed exchange rates. the future exchange rate is unpredictable. BWhile researchers found it easy to reject the random walk hypothesis for exchange rates on empirical .Chapter 06 #49 Topic: Efficient Market Approach 50. production. the best predictor of the future exchange rate is the current exchange rate.Chapter 06 #55 Topic: Fundamental Approach 56. C. Which of the following issues are difficulties for the fundamental approach to exchange rate forecasting? AOne has to forecast a set of independent variables to forecast the exchange rates. none of the above Eun .Chapter 06 #53 Topic: Efficient Market Approach 54. C. that is the α's and β's. C.53. the technicians tend to use "cause and effect" models. Academic studies tend to discredit the validity of technical analysis. B. D. Eun . both b and c Eun . The model itself can be wrong.Chapter 06 #54 Topic: Fundamental Approach 55. that are estimated using historical data may change over . B. Which of the following is true? A. fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. BIt can be rational for individual traders to use technical analysis—if enough traders use technical . the best predictor of the future exchange rate is the current forward rate. Generating exchange rate forecasts with the fundamental approach involves A.Chapter 06 #56 Topic: Fundamental Approach 57. outperforms the efficient market approach. B. Forecasting the . C. All of the above Eun . This can be viewed as support technical analysis. That can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. the fundamentalists tend to believe that "history will repeat itself" is the best model. outperforms the random walk model. substituting the estimated values of the independent variables into the estimated structural model to generate the forecast D. None of the above Eun .Chapter 06 #58 Topic: Technical Approach . but fails to more accurately forecast exchange rates than the forward rate model. With regard to fundamental forecasting versus technical forecasting of exchange rates A. None of the above Eun . both a and b are consistent with the efficient market hypothesis. looking at charts of the exchange rate and extrapolating the patterns into the future B. D. BThe parameter values. both a and b D. D. time because of changes in government policies and/or the underlying structure of the economy.Chapter 06 #57 Topic: Fundamental Approach 58. at least in the shortrun. D. former will certainly be subject to errors and may not be necessarily easier than forecasting the latter. The random walk hypothesis suggests that A. Either difficulty can diminish the accuracy of forecasts even if the model is correct. Researchers have found that the fundamental approach to exchange rate forecasting A. estimation of a structural model C. C. analysis the predictions based on it can become self-fulfilling to some extent. C. The moving average crossover rule A.Chapter 06 #60 Topic: Technical Approach 61. signals that the foreign currency is appreciating. C.59. B. C. D. what matters in exchange rate determination A. the future behavior of exchange rates. C. D. B. B states that a crossover of the short-term moving average above the long-term moving average . tend to support the view that forecasting is easy. D. D. none of the above Eun . the relative velocities of monies. at least with regard to major currencies like the euro and Japanese yen. you can make more money selling forecasts than you can following forecasts. the relative national outputs. the velocity of money.Chapter 06 #64 Topic: Appendix 6A: Purchasing Power Parity and Exchange Rate Determination .Chapter 06 #63 Topic: Performance of the Forecasters 64. the average forecaster is better than average at forecasting. According to the research in the accuracy of paid exchange rate forecasters. none of the above Eun . Eun . none of the above Eun . the beta. D. B. C.Chapter 06 #61 Topic: Performance of the Forecasters 62. A. the average forecaster is better than average at forecasting. as a group. is a fundamental approach to forecasting exchange rates. D. what matters in exchange rate determination are A. the past behavior of exchange rates. B. According to the research in the accuracy of paid exchange rate forecasters. Studies of the accuracy of paid exchange rate forecasters A. they do not do a better job of forecasting the exchange rate than the forward rate does.Chapter 06 #59 Topic: Technical Approach 60. Eun . signals that the foreign currency is depreciating. tend to support the view that banks do their best forecasting with the yen. According to the monetary approach. all of the above Eun . the forecasters do a better job of predicting the future exchange rates than the market does. B. According to the technical approach. the relative money supplies. A. tend to support the view that "you get what you pay for".Chapter 06 #62 Topic: Performance of the Forecasters 63. C states that a crossover of the short-term moving average above the long-term moving average . the forecasters do a better job of predicting the future exchange rate than the market does. none of the above. Chapter 06 .65. . D. According to the monetary approach. €) Eun . Eun . . the exchange rate can be expressed as A. C.Chapter 06 #65 Topic: Appendix 6A: Purchasing Power Parity and Exchange Rate Determination Please note that your answers are worth zero points if they do not include currency symbols ($. . none of the above. B.