ECO 410 Week 6 Quiz – Strayer
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Quiz 5 Chapter 9 and 10
Chapter 9 Foreign Exchange Rate
Determination and Forecasting
9.1 Exchange Rate Determination: The Theoretical
Thread
Multiple Choice
1) An
important thing to remember about foreign exchange rate determination is that
parity conditions, asset approach, and balance of payments approaches are
________ theories rather than ________ theories.
A)
competing; complementary
B)
competing; contemporary
C)
complementary; contiguous
D)
complementary; competing
2) Which
of the following did NOT contribute to the exchange rate collapse in emerging
markets in the 1990s?
A)
infrastructure weaknesses
B)
speculation on the part of market participants
C) the
sharp reduction of cross-border foreign direct investment
D) All
of the above contributed to the emerging markets exchange rate collapse of the
1990s.
3) The
________ provides a means to account for international cash flows in a
standardized and systematic manner.
A)
parity conditions
B) asset
approach
C)
balance of payments
D)
International Fisher Effect
4) The
________ approach argues that equilibrium exchange rates are achieved when the
net inflow of foreign exchange arising from current account activities is equal
to the net outflow of foreign exchange arising from financial account
activities.
A)
balance of payments
B)
monetary
C) asset
market
D) law
of one price
5) The
________ approach states that the exchange rate is determined by the supply and
demand for national currency stocks, as well as the expected future levels and
rates of growth of monetary stock.
A)
balance of payments
B)
monetary
C) asset
market
D) law
of one price
6) The
________ approach argues that exchange rates are determined by the supply and
demand for a wide variety of financial assets
A)
balance of payments
B)
monetary
C) asset
market
D) law
of one price
7) The
________ approach to the determination of spot exchange rates hypothesizes that
the most important factors are the relative real interest rate and a country's
outlook for economic growth and profitability.
A) balance
of payments
B)
parity conditions
C)
managed float
D) asset
market
8) The
asset market approach to forecasting assumes that whether foreigners are
willing to hold claims in monetary form depends on an extensive set of
investment considerations. These include all but which of the following
choices?
A)
relative real interest rates
B)
capital market liquidity
C)
political safety
D) All
of the above are considered by investors in their decision process.
9)
________ is defined as the spread of a crisis in one country to its neighboring
countries and other countries with similar characteristics.
A)
Speculation
B)
Contagion
C)
Capital market liquidity
D)
Political science
10)
Critics of the balance of payments approach to exchange rate determination
point to the emphasis on ________ of currency and capital rather than ________
of money or financial assets.
A)
flows; stocks
B)
stocks; flows
C)
import; export
D)
export; import
11)
Which of the following versions of PPP is thought to be the most relevant to
possibly explaining what drives exchange rate values?
A) The
Law of One Price
B)
Absolute Purchasing Power Parity
C)
Relative Purchasing Power Parity
D) The
International Fisher Effect
True/False
1) It is
safe to say that most determinants of the spot exchange rate are also affected
by changes in the spot rate. i.e., they are linked AND mutually determined.
2) The
balance of payments approach of exchange rate theory is largely dismissed by
the academic community today, while the practitioner public still rely on
different variations of the theory for their decision making.
3)
Technical analysis of exchange rates developed in part due to the forecasting
inadequacies of fundamental exchange rate theories.
4) The
authors claim that theoretical and empirical studies appear to show that
fundamentals do apply to the long-term for foreign exchange.
5) The
authors claim that random events, institutional frictions, and technical
factors may cause currency values to deviate significantly from their long-term
fundamental path.
6) The
asset market approach to forecasting is not applicable to emerging markets.
7) Most
theories of technical analysis differentiate fair value from market value.
Essay
1) Describe
the asset market approach to exchange rate determination. How is this
consistent with economic theory of (say, security) prices in general?
9.2 Currency Market Intervention
Multiple Choice
1)
________ is the active buying and selling of the domestic currency against
foreign currencies.
A)
Indirect Intervention
B)
Direct Intervention
C)
Foreign Direct Investment
D)
Federal Funding
2) Which
of the following is NOT a technique used by governments or central banks to
impact domestic currency valuation?
A)
Indirect Intervention
B)
Direct Intervention
C)
Capital Controls
D) All
of the above are techniques used to control currency valuation.
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