01. The Efficient Markets Hypothesis states A). Markets tend to evolve to low transactions costs and speedy execution of orders B). Current asset prices (eg. exchange rates) fully reflect all the available and relevant information C). Current exchange rates cannot be explained by such fundamental forces as money supplies, inflation rates and so forth D). None of the above 02. Researchers have found that the fundamental approach to exchange rate forecasting A). Outperforms the efficient market approach B). Fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model C). Outperforms the random walk model, but fails to more accurately forecast exchange rates than the forward rate model. D). Fails to more accurately forecast exchange rates than either the random walk model or the forward rate model 03. Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/, and the one-year forward exchange rate is $1.58/. What must one-year interest rate in the United States? A). 2.00% B). 2.5296 C). 2.7096 D). 3.20% 04. If the annual inflation rate is 3.5 percent in the United States and 4 percent in the U.K., and the dollar appreciated against the pound by 2.5 percent, then the real exchange rate, assuming that PPP initially held, is: A). 0.01981 B). 0.97101 C). 1.00058 D). 1.02071