An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.
A) overshoot
B) undershoot
C) depreciate
D) appreciate

Question

Quizplus · Accepted Answer

An exchange rate is said to overshoot when it responds more in the short run than in the long run to changes in market fundamentals such as interest rates or inflation. This can lead to volatility in the exchange rate and may cause difficulties for businesses that rely on stable exchange rates for planning and investment decisions.

An Exchange Rate Is Said to ____ When Its Short-Run