If foreign exchange markets are efficient,all of the following will hold except:
A) Exchange rates change only when new information arrives.
B) Exchange rates change randomly.
C) Incremental changes of exchange rates depend on the current level of the exchange rate.
D) The current exchange rate reflects all relevant information.

Question

Quizplus · Accepted Answer

In efficient foreign exchange markets, exchange rates change in response to new information (A) and reflect all relevant information (D), and their changes are unpredictable or random (B), meaning they do not depend on the current level of the exchange rate (C). This makes C the exception, as efficient markets theory suggests that price changes are independent of past levels.

If Foreign Exchange Markets Are Efficient,all of the Following Will