Question

Forecasting exchange rates involves: (a) knowing the history of exchange rate behavior. (b) assessing data on money supply growth and potential real income growth. (c) understanding the relationship between monetary policy and unemployment. (d) assessing data on money supply and unemployment.

Answer 1

The correct answer is letter "A": knowing the history of exchange rate behavior.

Step-by-step explanation:

Forecasting exchange rates can help minimize risks and maximize returns. Forecasting techniques include technical forecasting, fundamental forecasting, and a mixture of the two of them. Technical forecasting uses historical exchange rate data to "predict" future exchange rates. Fundamental forecasting uses fundamental relationships among economic variables -interest rates, inflation, income, for instance- and exchange rates.