Which of the following statements regarding nominal exchange rate forecasts is FALSE?
A) Forward exchange rates perform better than spot exchange rates as the forecasting horizon is extended beyond one year.
B) The current spot rate is a useful forecast of future exchange rates for horizons of up to one year.
C) The variability of nominal exchange rates is large relative to forward premiums and discounts.
D) The variability of nominal exchange rates is large relative to inflation differentials.
E) The variability of forward premiums/discounts is large relative to interest rate differentials.
Correct Answer:
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