University:
McMaster University
Course:
COMMERCE 3FC3 | International Finance
Academic year:

2022
Views:

440

Pages:

2
Author:

Sabrina S.

Chapter 6 Pt. 2 The theory that states that the exchange rate between currencies of two countries. Countries price levels is should be equal to the ratio of the parity. Purchasing Power If a country's currency by more than is warranted by PPP, the competitiveness of the country's industries will because the real exchange rate has changed. Depreciates, Increase Appreciates, Decrease What are reasons commonly given for the unfavorable empirical evidence about ppp? • Nontradables 4 Transportation Costs. The market hypothesis is that current asset prices. fully reflect all available and relevant information. Efficient In the equation s=a+B. (m-m²) + β₂ (v-v²) + B₃ (y-y) + u, match the variables to their descriptions. S natural logarithm of the Spot Exchange rate. m-mnatural logarithm of domestic / foreign money supply. v-vnatural logarithm of domestic/foreign velocity of money. y-ynatural logarithm of domestic foreign output random error term. Purchasing Power Parity can be thought of as An application of arbitrage equilibrium. The law of one price applied to the standard consumption basket. Changes in nominal exchange rates can cause changes in real exchange rates, affecting the international competitive positions of Countries, when parity does not hold. Purchasing Power Technical analysis tends to be discredited by Supported by but Academic Studies, Traders A simple and light-hearted approach to PPP is given by the index. Big mac What are features of the efficient market approach to forecasting interest rates? It is not easy to outperform market-based forecasts. It is inexpensive to generate forecasts using the assumption of efficient markets. Use of the equation s=a.β. (m.m²)+B₂ (v-vo) B₂ (y-y) u to forecast interest rates is an example of the approach. Fundamental If a trader knows that other traders use analysis of historical patterns to forecast exchange rates, it can be rational for that trader to use it, toD Technical