If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have:
A) underestimated the future exchange rates over time.
B) overestimated the future exchange rates over time.
C) forecasted future exchange rates accurately.
D) forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating.

Question

Quizplus · Accepted Answer

A consistently declining currency indicates a trend of decreasing value over time, which means that a market-based forecast is likely to overestimate the future exchange rates over time. This is because market participants will adjust their expectations based on the trend and sell the currency, leading to a further decline in value. Therefore, the forecast will be biased towards overestimating the currency's value.

If a Particular Currency Is Consistently Declining Substantially Over Time