If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos,then the forecast is given in
A)real terms and implies the dollar will appreciate.
B)real terms and implies the dollar will depreciate.
C)nominal terms and implies the dollar will appreciate.
D)nominal terms and implies the dollar will depreciate.

Question

Quizplus · Accepted Answer

The forecast is given in nominal terms because it simply states the expected change in the exchange rate between the dollar and the peso without taking into account any changes in the prices of goods and services in either country. The forecast implies that the dollar will appreciate because it will be able to purchase more pesos in the future than it can currently.

If a Dollar Currently Purchases 12