Instruments Denominated in Different Currencies Are Perfect Substitutes for One

question 16

Short Answer

Instruments denominated in different currencies are perfect substitutes for one another.
Empirical studies of the efficient foreign exchange market hypothesis have yielded conflicting results. Nevertheless, a consensus is developing that rejects the efficient market hypothesis. It appears that the forward rate is not an unbiased predictor of the future spot rate and that it does pay to use resources to attempt to forecast exchange rates.

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Definitions:

Auditory Communication

The transmission of information or messages through sound waves, which can be received and interpreted by hearing.

Physical Communication

The use of body language, facial expressions, and other non-verbal cues to convey information or express emotions.

Associative Learning

The process by which an individual learns the connection between two stimuli or between a behavior and a consequence.

Operant Conditioning

A learning process through which the strength of a behavior is modified by reinforcement or punishment.