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Which of the following forecasting techniques would best represent the use of today's forward exchange rate to forecast the future exchange rate? A) fundamental forecasting. B) market-based forecasting. C) technical forecasting. D) mixed forecasting.
Answer: Fundamental analysis typically uses formal economic models of exchange rate determination and macroeconomic fundamental data such as money supplies, inflation rates, productivity growth rates, and the current account of the balance of payments to predict exchange rates.
Two methods for assessing exchange rate volatility are to use the volatility of historical exchange rate movements and to derive the exchange rate's implied standard deviation from the currency option pricing model.
There are two pure approaches to forecasting FX rates: (1) The fundamental approach (based on data considered fundamental). (2) The technical approach (based on data that incorporates only past prices).
Which of the following forecasting techniques would be most likely to use today's spot exchange rate of the euro to forecast the euro's future exchange rate?
