What factors can change expectations about the exchange rate?

Question

Quizplus · Accepted Answer

Expectations about the exchange rate can be influenced by purchasing power parity, which compares the prices of a basket of goods in different countries, and interest rate parity, which takes into account the difference in interest rates between two countries. Real GDP parity, on the other hand, refers to the equality in the size of the economies of different countries and is not directly related to exchange rate expectations. Therefore, choices A and B are both relevant factors that can affect expectations about the exchange rate.

What Factors Can Change Expectations About the Exchange Rate