In the long run, exchange rates will never follow a fundamental equilibrium path as suggested by the fundamental theories of exchange rate determination.

Question

Quizplus · Accepted Answer

In the long run, exchange rates are expected to follow a fundamental equilibrium path as suggested by theories like Purchasing Power Parity (PPP) and Interest Rate Parity (IRP), which consider economic fundamentals.

In the Long Run, Exchange Rates Will Never Follow a Fundamental