Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Which of the following forecasting techniques would best represent the use of
today's forward exchange rate to forecast the future exchange rate?
a. | fundamental forecasting. | c. | technical
forecasting. | b. | market-based forecasting. | d. | mixed forecasting. |
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2.
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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. |
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3.
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Which of the following is true according to the text?
a. | Forecasts in recent years have been very accurate. | b. | Use of the absolute
forecast error as a percent of the realized value is a good measure to use in detecting a forecast
bias. | c. | Forecasting errors are smaller when focused on longer term
periods. | d. | None of the above. |
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4.
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Assume that the forward rate is used to forecast the spot rate. The forward rate
of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is
£0.47. The spot rate forecasted for one year ahead is:
a. | £0.4418. | b. | £0.2032. | c. | £0.5467. | d. | £0.4982. | e. | none of the
above |
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5.
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Which of the following is not a forecasting technique mentioned in your
text?
a. | accounting-based forecasting. | c. | fundamental
forecasting. | b. | technical forecasting. | d. | market-based forecasting. |
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6.
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Which of the following is not a method of forecasting exchange rate
volatility?
a. | using the absolute forecast error as a percentage of the realized
value. | b. | using the volatility of historical exchange rate movements as a forecast for the
future. | c. | using a time series of volatility patterns in previous periods. | d. | deriving the
exchange rate's implied standard deviation from the currency option pricing
model. |
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7.
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Corporations tend to make only limited use of technical forecasting because it
typically focuses on the near future, which is not very helpful for developing corporate
policies.
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8.
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If a foreign country's interest rate is similar to the UK rate, the forward
rate premium or discount will be _________, meaning that the forward rate and spot rate will provide
________ forecasts.
a. | substantial; similar | c. | close to zero; similar | b. | substantial; very
different | d. | close to zero;
very different |
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9.
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Factors such as economic growth, inflation, and interest rates are an integral
part of __________ forecasting.
a. | technical | c. | market-based | b. | fundamental | d. | none of the
above |
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10.
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MNCs can forecast exchange rate volatility to determine the potential range
surrounding their exchange rate forecast.
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11.
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The most sophisticated forecasting techniques provide consistently accurate
forecasts.
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12.
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Foreign exchange markets appear to be strong-form efficient.
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