Fundamental Forecasting Methods Quiz

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What does market efficiency imply?

Insider trading is the main driver of price changes

The irrelevance of how information is disclosed

The accuracy of information disclosed

Expectations are the basis for price movements (correct)

Which type of forecasting uses historical exchange rate data to predict future values based on patterns?

PPP forecasting

Technical forecasting (correct)

Sensitivity analysis

Fundamental forecasting

What triggers sales of pounds according to the text?

Technical factors (correct)

Economic news

Expectations of future exchange rates

Overselling of euros

Which factor is NOT part of fundamental forecasting?

Day-to-day exchange rate movements Signup and view all the answers

Why do academic models sometimes fail?

The definition of information as news Signup and view all the answers

What does PPP (Purchasing Power Parity) forecast rely on?

Fundamental relationships between economic variables Signup and view all the answers

According to the Efficient Market Hypothesis (EMH), what is the best forecast for a future exchange rate?

The current spot rate Signup and view all the answers

What is a limitation of using forward rates for long-term exchange rate forecasting?

Forward rates become less accurate over longer time horizons due to changing expectations. Signup and view all the answers

Which of the following statements about mixed forecasting is true?

It combines technical, fundamental, and market-based forecasting techniques. Signup and view all the answers

What is the purpose of measuring forecast error?

To determine the accuracy of the forecasting procedure. Signup and view all the answers

Which of the following techniques is based on the idea that exchange rates reflect economic fundamentals?

Fundamental analysis Signup and view all the answers

What is the formula for calculating the absolute forecast error as a fraction of the realized value?

(Forecasted value - Realized value) / Realized value Signup and view all the answers

What is the primary purpose of using sensitivity analysis in fundamental forecasting?

To account for more than one possible outcome for factors exhibiting uncertainty Signup and view all the answers

According to the passage, what is one of the key limitations of using Purchasing Power Parity (PPP) for fundamental forecasting?

The timing of the impact of inflation fluctuations on exchange rates is not known with certainty Signup and view all the answers

Which of the following is a key limitation of fundamental forecasting mentioned in the passage?

Fundamental forecasting is unable to determine the precise timing of the impact of some factors on a currency's value Signup and view all the answers

According to the passage, which of the following is a market-based forecasting approach?

Using the spot rate Signup and view all the answers

Which of the following factors can affect exchange rates according to the passage?

Both inflation rate differential and interest rate differential between countries Signup and view all the answers

What is one of the key limitations of using regression analysis in fundamental forecasting according to the passage?

Regression analysis cannot be used to determine the precise timing of the impact of factors on exchange rates Signup and view all the answers