Question

"The exchange rate is always easy to predict." Evaluate the truth of this statement and explain if so.

Answer 1

I don't think the exchange rate is always easy to predict. The underlying determinant of the exchange rate is demand and supply of currencies. However, it is not easy to predict exchange rate movements always because demand and supply of currencies can be affected by a multitude of factors like interest rate, economic growth, trade flow, national debt, monetary policy, fiscal policy, interest rates, inflation, investment flow, etc. Interaction of all these factors makes it very difficult to predict exchange rates movement.