Which of the following is true regarding forecast errors?
A) Forecasts for the Chinese yuan are likely to have large forecast errors because the yuan is a volatile currency.
B) Potential forecast errors may vary depending on the time horizon, the currency's volatility, and whether the country issuing the currency is experiencing political problems.
C) Forecasts for currencies in high-inflation countries will be more accurate if they use the spot rate rather than the forward rate because the spot rate captures the difference in interest rates (and thus inflation rates) between two countries.
D) Potential forecast errors may vary depending on the time horizon, the currency's volatility, and whether the country issuing the currency is experiencing political problems AND forecasts for currencies in high-inflation countries will be more accurate if they use the spot rate rather than the forward rate because the spot rate captures the difference in interest rates (and thus inflation rates) between two countries.

Question

Quizplus · Accepted Answer

B is correct because it accurately describes that forecast errors can vary based on several factors such as the time horizon, currency volatility, and political stability of the country issuing the currency. This acknowledges the complexity and variability in forecasting currency movements.

Which of the Following Is True Regarding Forecast Errors