1. True or False: The PPP forecasting model belongs to the fundamental forecast approach.

2. True or False: Forecast errors are positively correlated with the currency volatility.

3. True or False: The factors in the fundamental models are usually transformations of economic variables. For example, the interest rate differential and natural logarithm of income level differential.

4. If a particular currency is consistently declining substantially over time, then a spot rate forecast will usually have:

A. downward bias

B. upward bias

C. forecasted future exchange rate accurately

D. no bias