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Answer with justification (mention whether there is any condition that is driving your answer: a statement...

Answer with justification (mention whether there is any condition that is driving your answer: a statement can be true under some condition and at the same time uncertain under some other condition). (True, False or Uncertain): .

Efficiency of market implies that exchange rate should be predictable

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Answer #1

False....

This is because predictable exchange rates are only possible where the market is inefficient. This is because when the market is inefficient, there exists an omitted factor that is actually consistent with the efficient market and these omitted factors include the problems such as regime switch, risk premium and peso factor etc. This actually gets to imply some sort of predictability where the linear combination of exchange rates represented by cointegrating relations which serve as some sort of proxy for the omitted factors on the whole.

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