If a particular currency of a developed country is consistently declining substantially over time, then a market-based forecast of that currency will usually have:
A) underestimated the future exchange rates over time.
B) overestimated the future exchange rates over time.
C) forecasted future exchange rates accurately.
D) forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating.

Question

Quizplus · Accepted Answer

If a currency is consistently declining substantially over time, then a market-based forecast of that currency will usually have overestimated the future exchange rates over time. This is because the market will factor in the current trend of the currency and project it into the future, resulting in an overestimation of its value.

If a Particular Currency of a Developed Country Is Consistently