Changes in which of the following variables will cause the current nominal exchange rate to change?
A)the future expected long-run nominal exchange rate, Eᵉt₊n
B)future expected domestic nominal interest rates
C)future expected foreign nominal interest rates
D)all of the above

Question

Quizplus · Accepted Answer

All of the above variables can have an impact on the current nominal exchange rate. The future expected long-run nominal exchange rate can affect current expectations and lead to a change in the current rate. Future expected domestic and foreign nominal interest rates can impact the demand for each currency, which can cause a change in the exchange rate.

Changes in Which of the Following Variables Will Cause the Current