Which of the Following Is Not a Method of Forecasting

question 4

Multiple Choice

Which of the following is not a method of forecasting exchange rate volatility?

• A) using the absolute forecast error as a percentage of the realized value
• B) using the volatility of historical exchange rate movements as a forecast for the future
• C) using a time series of volatility patterns in previous periods
• D) deriving the exchange rate's implied standard deviation from the currency option pricing model

---

Definitions:

Governmental Intervention

Actions taken by a government to affect the economy, which can include regulations, subsidies, and taxes.

Discretionary Policy

Economic policies based on judgment decisions by policymakers, as opposed to rules-based policies, to manage the economy.

Policy Tools

Policy tools are mechanisms used by government or monetary authorities to influence the economy, such as interest rates, taxation, and government spending.

Economy's Potential

The economy's potential refers to its maximum productive capacity when resources are fully employed, indicating a state where unemployment is at the natural rate and there is no demand-pull inflation.