TCQT PART 2

Which of the following is not a forecasting technique mentioned in your text?

• accounting-based forecasting.

• fundamental forecasting.

• technical forecasting.

• market-based forecasting.

Which of the following is not a method of forecasting exchange rate volatility?

• using the absolute forecast error as a percentage of the realized value

• using the volatility of historical exchange rate movements as a forecast for the future.

• using a time series of volatility patterns in previous periods.

• deriving the exchange rate's implied standard deviation from the currency option pricing model.

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.

• true

• false

f 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.

• substanial ; very different

• close to zero ; similar

• substanial ; similar

• close to zero ; very diferent

Factors such as economic growth, inflation, and interest rates are an integral part of

_forecasting.

• technical

• market-based

• fundamental

• none of the above

MNCs can forecast exchange rate volatility to determine the potential range surrounding their exchange rate forecast.

• true

• false

The most sophisticated forecasting techniques provide consistently accurate forecasts.

• true

• false

The most sophisticated forecasting techniques provide consistently accurate forecasts.

• true

• false

Translation exposure reflects:

• the exposure of a firm's ongoing international transactions to exchange rate fluctuations.

• the exposure of a firm's local currency value to transactions between foreign exchange traders.

• the exposure of a firm's financial statements to exchange rate fluctuations.

• the exposure of a firm's cash flows to exchange rate fluctuations.

Diz Itd. is a UK-based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Yanta ltd is a UK-based MNC that has the same level of net cash flows in these currencies as Diz Itd except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk?

• Diz Itd.

• Yanta Itd

• the firms have about the same level of exposure.

• neither firm has any exposure.