A forecast error is caused by a:
A) real exchange rate depreciation.
B) nominal exchange rate depreciation.
C) difference between expected nominal exchange rate depreciation and actual depreciation.
D) nation's movement fixed to floating exchange rates.

Question

Quizplus · Accepted Answer

A forecast error occurs when the actual value of a variable differs from its predicted value. In the case of exchange rates, a forecast error is caused by a difference between the expected and actual nominal exchange rate depreciation. This can be due to a variety of factors, such as changes in economic conditions, political events, or investor sentiment. Real exchange rate depreciation (A) and nominal exchange rate depreciation (B) are not direct causes of forecast errors, but rather outcomes that can result from forecast errors. A nation's movement from fixed to floating exchange rates (D) may affect exchange rate movements, but it is not directly related to forecast errors.

A Forecast Error Is Caused by A