Tracking Error Management & Sources of Return and Risk

Discuss why Katerina uses technical charts in analysis, and how this differs from models of economic fundamentals.

Which key points did you cite in your response? (Select all that apply.)

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Correct! Price patterns tend to repeat.

No. There's an assumption that markets are inefficient in the short term and participants are emotional.

Katerina follows technical analysis because she believes that historical price patterns that have a tendency to repeat can help project future exchange rate movements. This is because market participants tend to react in similar ways to similar situations, even though the reaction may not be rational. Also, the market has already priced in the economic fundamentals reflected in their trading positions. The economic fundamentals approach is based on the idea that in free markets, the exchange rates are determined by economic relationships and purchasing power parity based on interest rate differentials, expected inflation, and risk premium. In the long run, the exchange rate will converge to its “fair value.”

That's unfortunate.

No. This is true for economic models.

Right!

Yes.

The historical price data in technical charts helps to predict future price movements

The use of technical charts depends on interest rate differentials

Technical charts reflect an assumption that markets are efficient and participants are rational

Technical charts use visual cues to identify market patterns

Technical charts involve a study of market psychology

None of these

Out of time step

Other responses

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