Key to Test One
(1)—(5): cbbbb (6)—(10): dbabd (11)—(15): eccbc (16)—(20): ccaea (21)—(25):adddd
(26)The J-curve effect is that in the short run export volumes and import volumes do not change much, so that the price effect outweighs the volume effect leading to deterioration in the current account.However, after a time lag export volumes start to increase and import volumes start to decline; consequently the current deficit starts to improve and eventually moves into surplus.The issue then is whether the initial deterioration in the current account is greater than the future improvement so that overall devaluation can be said to work.
Let’s illustrate it as follows:
(27)Upward or downward changes in the exchange rate can affect export and import transaction.The current level of exchange rates affects the relative cost of imports versus domestic goods.A high current level of the spot rate for a foreign currency discourages imports and encourages exports.And it will lead to surplus in balance of payments.A low exchange rate for a foreign currency encourages imports and discourages exports.And it will lead to deficit in balance of payments.
(28)
So F(RMB/USD)= S(RMB/USD)+0.036 = 7.2360
(29)a.Yes
b.AUD will appreciate and NZD will depreciate.
c.
d.S(NZD/AUD)= 1.667
(30)
Weak efficiency
Weak efficiency means that prices reflect all the information contained in the past behavior of prices (or rather exchange rates).This proposition casts doubt on the reliability and usefulness of time series and technical forecasting as well as the mechanical trading rules.
Semi-strong efficiency
Semi-strong efficiency implies that the information set contains not only the past behavior of exchange rates, but also all publicly available information.This level of efficiency casts doubt on the reliability of not only technical and time series forecasting, but also econometric forecasting models, which are built on the basis of some underlying economic theory.
Strong efficiency
Strong efficiency implies that prices reflect all available information, including private information and insider information.If the foreign exchange market is efficient in this sense,then not even insider and private information can help us to predict the future behavior of exchange rates or to make abnormal profit.
It is normally argued that this level of efficiency does not apply to the foreign exchange market because unlike the stock market, insider information is not important.