The _____ effect suggests that speculations can sometimes be destabilizing as the actions of the international investors move the exchange rate away from the long-run equilibrium value consistent with fundamental economic influences.
A)bandwagon
B)overshooting
C)exchange rate
D)arbitrage

Question

Quizplus · Accepted Answer

The bandwagon effect refers to the phenomenon where the actions of investors, based on speculation, can lead to an exchange rate moving away from its long-run equilibrium value, as investors tend to follow the majority trend, which can be destabilizing.

The _____ Effect Suggests That Speculations Can Sometimes Be Destabilizing