96. According to economic theory, interest rates reflect expectations about likely _____.
97. In countries where inflation is expected to be high, interest rates also will be high,
because investors want compensation for the decline in the value of their money. This
relationship is referred to as the _____.
98. The Fisher effect states that:
99. According to the Fischer effect, if the “real” rate of interest in a country is 4 percent and
expected annual inflation is 9 percent, the “nominal” interest rate will be _____.
100. The _____ states that for any two countries, the spot exchange rate should change in an
equal amount but in the opposite direction to the difference in nominal interest rates between
the two countries.
101. The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the
international Fisher effect, the Brazilian real should:
102. Which of the following refers to the bandwagon effect?
103. Which of the following is the reason for the failure of purchasing power parity theory and
international Fisher effect in predicting short-term movements in exchange rates?
104. Which of the following positions is adopted by the inefficient market school of thought
toward exchange rate forecasting?
105. Which of the following is true of the efficient market school of thought toward exchange
rate forecasting?
106. In terms of exchange rate forecasting, a(n) _____ market is one in which prices do not
reflect all available information.
107. In terms of the approaches to exchange rate forecasting, _____ draw(s) on economic
theory to construct sophisticated econometric models for predicting exchange rate movements.
108. Which of the following is a variable used in exchange rate forecasting models based on
fundamental analysis?
109. Which of the following is true of a country that is running a deficit on a balance–of–
payments current account?
110. Which of the following approaches to forecasting exchange rate movements uses price
and volume data to determine past trends?
111. Which of the following premises is technical analysis, an approach to exchange rate
forecasting, based on?
112. Which of the following observations is true of technical analysis, an approach to
exchange rate forecasting?
113. A country’s currency is said to be _____ when the country’s government allows both
residents and nonresidents to purchase unlimited amounts of a foreign currency with it.
114. A currency is said to be _____ when only nonresidents may convert it into a foreign
currency without any limitations.
115. The government of Beryllia tightly controls the ability of its residents to convert its
currency into other currencies. However, all foreign businesses with deposits in banks of Beryllia
may, at any time, convert all their currency into foreign currency and take them out of the
country. Beryllia’s currency is said to be _____.