_____ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.
A)Efficient market theory
B)Inefficient market theory
C)Fundamental analysis
D)Technical analysis

Question

Quizplus · Accepted Answer

Fundamental analysis involves using economic theory to evaluate various economic factors in order to predict market movements. Therefore, fundamental analysis is the most appropriate choice for constructing econometric models to forecast exchange rate movements. Efficient market theory proposes that all relevant information is already reflected in market prices, while inefficient market theory suggests that prices do not always accurately reflect all available information. Technical analysis involves analyzing historical price and volume data to predict future market movements. None of these approaches specifically involve constructing econometric models based on economic theory, which is what is required in this question.

_____ Draws on Economic Theory to Construct Sophisticated Econometric Models