5 Written questions
5 Multiple choice questions
- Explains why currencies may diverge from equilibrium values for extended periods. If investment is greater than domestic savings, then capital must flow into the country from abroad to finance the investment. At the same time the country will have a current account deficit, which would normally indiciate that a currency will weaken, but not in this instance.
- 1. Responsible fiscal and monetary policies?
2. What is the expected growth?
3. Does the country have reasonable currency values and current account deficits?
4. Is the country too highly levered?
5. What is the level of foreign exchange reserves relative to short-term debt?
6. What is the government's stance regarding structural reform?
- formulating capital market expectations, related to systematic risk
- analyst's predictions are highly influenced by the recent past
- weighted averages of historical data and some other estimate, where the weights and other estimates are defined by the analyst
4 True/False questions
Nine problems encountered in producing forecasts: → 1. limitations to using economic data
2. data measurement error and bias
3. limitations of historical estimates
4. the use of ex post risk and return measures
5. non-repeating data patterns
6. failing to account for conditioning information
7. misinterpretation of correlations
8. psychological traps
9. model and input uncertainty
prudence trap → analyst's predictions are highly influenced by the recent past
alpha research → formulating capital market expectations, related to systematic risk
Taylor Rule → if the earnings yield is lower than the yield on the 10-year TSY, the investor would shift their money into the less risky TSY