Foreign Exchange Movement

Question 1

Technical forecasting of foreign exchange rates

Answer 1

Just like technical analysis in EMH - uses statistics, historical data, charts, and graphs tracking behavior of the foreign exchange rates to predict their future movements - will it depreciate? Will it appreciate?

Question 2

Fundamental forecasting of foreign exchange rates

Answer 2

Just like fundamental analysis in EMH - uses relationships between foreign exchange rates and economic variables to forecast movement of foreign exchange rates

Question 3

Spot Rate Market vs. Forward Rate Market

Answer 3

Spot Rate = the exchange rate on the market right now on the spot

Forward Rate = the rate that the market thinks it will be in 90 days, 120 days, XXX days. –> it is the forecasted FUTURE spot rate. ****be sure to annualize the forward rate if the exam questions asks for annual amount

Question 4

Economic Exposure

Answer 4

Risk of exchange rate fluctuations affecting a firm’s FUTURE cash flow

Question 5

Translation Exposure

Answer 5

XXXXX

Question 6

Transactions Risk

Answer 6

WTF is this?