Which of the following is not a factor limiting the effectiveness of the asset-m

Question

Which of the following is not a factor limiting the effectiveness of the asset-market approach to exchange rate determination?

a)Diversification forces investors to not channel all of their funds into one country/market

Increased economic uncertainty leads some investors to “flee” to safe haven that have lower risk, but also lower real returns

Due to human nature many investors tend to overestimate changes in future exchange rates

d) Most foreign exchange transactions have nothing to do with nominal or real interest rate differences

a)Diversification forces investors to not channel all of their funds into one country/market

Increased economic uncertainty leads some investors to “flee” to safe haven that have lower risk, but also lower real returns

Due to human nature many investors tend to overestimate changes in future exchange rates

d) Most foreign exchange transactions have nothing to do with nominal or real interest rate differences

Explanation / Answer

Ans- c)Due to human nature many investors tend to overestimate changes in future exchange rates

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