Which of the Following Is the Reason for the Failure

Multiple Choice

Which of the following is the reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates?

A) The impact of investor psychology on short-run exchange rate movements
B) The strong relationship between inflation rates and interest rates
C) The impact of interest rates and short-term exchange rate movements
D) The strong relationship between interest rate differentials and subsequent changes in spot exchange rates
E) Government intervention in cross-border trade that violates the assumption of efficient markets