Chapter 8

Fundamentals of Multinational Finance, 5e (Moffett et al.)
Chapter 8 Foreign Exchange Rate Determination

Multiple Choice and True/False Questions

8.1 Exchange Rate Determination: The Theoretical Thread

1) The 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.
A) competing; complementary
B) competing; contemporary
C) complementary; contiguous
D) complementary; competing
Answer: D
Diff: 1
Topic: 8.1 Exchange Rate Determination: The Theoretical Thread
Skill: Recognition

2) It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate. i.e., they are linked AND mutually determined.
Answer: TRUE
Diff: 1
Topic: 8.1 Exchange Rate Determination: The Theoretical Thread
Skill: Conceptual

3) 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
A) balance of payments
B) monetary
C) asset market
D) law of one price
Answer: B
Diff: 1
Topic: 8.1 Exchange Rate Determination: The Theoretical Thread
Skill: Recognition

4) The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets
A) balance of payments
B) monetary
C) asset market
D) law of one price
Answer: C
Diff: 1
Topic: 8.1 Exchange Rate Determination: The Theoretical Thread
Skill: Recognition
5) Technical analysis of exchange rates was developed in part due to the forecasting inadequacies of fundamental exchange rate theories.
Answer: TRUE
Diff: 1
Topic: 8.1 Exchange Rate Determination: The Theoretical Thread
Skill: Conceptual

6) 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