BMC - Bloomberg Market Concepts - Questions And Answers
What is the main reason that investment banks create estimates of economic indicators?
Ans - to know when specific economic data points are a positive or negative surprise
Which of the following is the biggest pitfall of economic indicators?
1. they do not take into account seasonality
2, they are not sufficiently timely to make investment decisions
3. they only serve as proxys for economic activity
4. they do not consistently presage turning points
Ans - they do not consistently presage turning points
In 1994, the Mexican peso declined against the US dollar by 37% during the so-called Tequila
Crisis. What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine
crisis of 2002?
Ans - both countries had large dollar-denominated debts
What are 3 examples of failed pegs?
Ans - 1. British sterling against the Deutsch mark in 1992
2. Mexican peso against the US dollar in 1994
3. Argentine peso against the US dollar in 2002
What is an example of a failed peg?
Ans - Hong Kong dollar aginst the US dollar in 1997
Currency market mechanics summary:
Ans - -the US dollar equivilent of 5T of currencies are traded every day
-1971 marked the dawn of the modern currency market
-several contries peg their currencies to other currencies
-locked exchange rates are not actually set in stone but are government aspirations
-floating currencies move against one another in a matrix
-the US dollar is the world's reserve currency and is the most heavily traded currency
What generally happens when a central bank unexpectedly increases interest rates?
Ans - the currency strengthens
What driver weakened the Swiss frank?
Ans - a surprise change in inflation expectations
What does the Big Mac index show?
Ans - how currencies may be undervalues or overvalued
What are 3 main short-term drivers of currency valuation?
Ans - surprise changes in interest rates, inflation, and trade
What is the main reason that investment banks create estimates of economic indicators?
Ans - to know when specific economic data points are a positive or negative surprise
Which of the following is the biggest pitfall of economic indicators?
1. they do not take into account seasonality
2, they are not sufficiently timely to make investment decisions
3. they only serve as proxys for economic activity
4. they do not consistently presage turning points
Ans - they do not consistently presage turning points
In 1994, the Mexican peso declined against the US dollar by 37% during the so-called Tequila
Crisis. What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine
crisis of 2002?
Ans - both countries had large dollar-denominated debts
What are 3 examples of failed pegs?
Ans - 1. British sterling against the Deutsch mark in 1992
2. Mexican peso against the US dollar in 1994
3. Argentine peso against the US dollar in 2002
What is an example of a failed peg?
Ans - Hong Kong dollar aginst the US dollar in 1997
Currency market mechanics summary:
Ans - -the US dollar equivilent of 5T of currencies are traded every day
-1971 marked the dawn of the modern currency market
-several contries peg their currencies to other currencies
-locked exchange rates are not actually set in stone but are government aspirations
-floating currencies move against one another in a matrix
-the US dollar is the world's reserve currency and is the most heavily traded currency
What generally happens when a central bank unexpectedly increases interest rates?
Ans - the currency strengthens
What driver weakened the Swiss frank?
Ans - a surprise change in inflation expectations
What does the Big Mac index show?
Ans - how currencies may be undervalues or overvalued
What are 3 main short-term drivers of currency valuation?
Ans - surprise changes in interest rates, inflation, and trade
