2. Expectations play a crucial role in exchange rate determination because A) In

Question

2. Expectations play a crucial role in exchange rate determination because

A) Investors prefer to invest in assets denominated in the currency that is expected to devalue. B)A sudden change in the expected future value of an exchange rate can have a dramatic and often self fulfilling effect on the exchange rate. C) If investors suddenly believe that a currency will depreciate, it increases the expected value of assets denominated in that currency, creating a sudden inflow of financial capital D) A and C E) A, B, and C

Explanation / Answer

"B"

A sudden change in the expected future value of an exchange rate can have a dramatic and often self-fulfiling effect on the exchange rate. If the currency is expected to devalue or depreciate, it will cause an outflow and it will depreciate and if it is expected to appreciate, inflow will increase and it will appreciate the value of the currency.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.