Foreign Exchange Rate Determination And Intervention

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Question 1
Free
Multiple Choice

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.

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A

competing; complementary

B

competing; contemporary

C

complementary; contiguous

D

complementary; competing

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Question 2
Free
Multiple Choice

Which of the following did NOT contribute to the exchange rate collapse in emerging markets in the 1990s?

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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.

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Question 3
Free
Multiple Choice

The ________ provides a means to account for international cash flows in a standardized and systematic manner.

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A

parity conditions

B

asset approach

C

balance of payments

D

International Fisher Effect

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Question 4
Free
Multiple Choice

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.

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A

balance of payments

B

monetary

C

asset market

D

law of one price

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Question 5
Free
Multiple Choice

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.

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A

balance of payments

B

monetary

C

asset market

D

law of one price

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Question 6
Multiple Choice

The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets

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A
balance of payments
B
monetary
C
asset market
D
law of one price
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Question 7
Multiple Choice

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.

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A
balance of payments
B
parity conditions
C
managed float
D
asset market
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Question 8
Multiple Choice

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?

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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.
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Question 9
Multiple Choice

________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

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A
Speculation
B
Contagion
C
Capital market liquidity
D
Political science
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Question 10
Multiple Choice

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.

Choose correct answer/s
A
flows; stocks
B
stocks; flows
C
import; export
D
export; import
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Question 11
Multiple Choice

Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?

Choose correct answer/s
A
The Law of One Price
B
Absolute Purchasing Power Parity
C
Relative Purchasing Power Parity
D
The International Fisher Effect
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Question 12
True/False

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.

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True
False
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Question 13
True/False

Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.

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True
False
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Question 14
True/False

The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.

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True
False
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Question 15
True/False

The authors claim that random events, institutional frictions, and technical factors may cause currency values to deviate significantly from their long-term fundamental path.

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True
False
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Question 16
True/False

The asset market approach to forecasting is not applicable to emerging markets.

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True
False
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Question 17
True/False

Most theories of technical analysis differentiate fair value from market value.

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True
False
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Question 18
Essay

Describe the asset market approach to exchange rate determination. How is this consistent with economic theory of (say, security) prices in general?

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Question 19
Multiple Choice

________ is the active buying and selling of the domestic currency against foreign currencies.

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A
Indirect Intervention
B
Direct Intervention
C
Foreign Direct Investment
D
Federal Funding
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Question 20
Multiple Choice

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

Choose correct answer/s
A
Indirect Intervention
B
Direct Intervention
C
Foreign Direct Investment
D
Capital Controls
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