Future real interest rate movements will affect exchange rates

Financial economists at Horizon Capital believe that due to the recent surge in U.K. inflation rates that future real interest rate movements will affect exchange rates and have applied regression analysis to historical data to evaluate the relationship. The economists intend to use the regression coefficients derived from their econometric analysis together with forecasted real interest rate movements in order to forecast exchange rates in the future. Explain at least three limitations of this technique.

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