Fundamental Forecasting Methods Quiz
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Questions and Answers

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?

    <p>Day-to-day exchange rate movements</p> Signup and view all the answers

    Why do academic models sometimes fail?

    <p>The definition of information as news</p> Signup and view all the answers

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

    <p>Fundamental relationships between economic variables</p> Signup and view all the answers

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

    <p>The current spot rate</p> Signup and view all the answers

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

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

    Which of the following statements about mixed forecasting is true?

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

    What is the purpose of measuring forecast error?

    <p>To determine the accuracy of the forecasting procedure.</p> Signup and view all the answers

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

    <p>Fundamental analysis</p> Signup and view all the answers

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

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

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

    <p>To account for more than one possible outcome for factors exhibiting uncertainty</p> 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?

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

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

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

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

    <p>Using the spot rate</p> Signup and view all the answers

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

    <p>Both inflation rate differential and interest rate differential between countries</p> Signup and view all the answers

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

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

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