When Discussing Exchange Rate Forecasting, the Inefficient Market School of Thought

question 44

Multiple Choice

When discussing exchange rate forecasting, the inefficient market school of thought would agree that

• A) forward exchange rates are the best possible predictors of future spot exchange rates.
• B) forward exchange rates represent market participants' collective predictions of likely spot exchange rates.
• C) companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates.
• D) investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates.
• E) the foreign exchange market is efficient at setting forward rates, which are unbiased predictors of future spot rates.

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Definitions:

Absolute Advantage

A situation in which a country, individual, or company can produce a particular good or service more efficiently than another party, using the same amount of resources.

Trade

Trade involves the exchange of goods, services, or both between parties, which can be at the domestic or international level, fostering economic interaction and integration.

Opportunity Cost

The potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Export

A good or service produced in one country and sold to buyers in another country, contributing to the selling country's gross domestic product.