Generating exchange rate forecasts with the fundamental approach involves

Question

Quizplus · Accepted Answer

The fundamental approach involves estimation of a structural model using independent variables such as GDP, inflation rates, interest rates, and current account balance to forecast exchange rates. Once the model is estimated, the estimated values of the independent variables are substituted into the model to generate the forecast. Therefore, both options B and C are correct. Option A is not a valid approach for generating exchange rate forecasts using the fundamental approach.

Generating Exchange Rate Forecasts with the Fundamental Approach Involves