State the reasons behind exchange rate overshooting.

Question

17 Oct 2021

Answer :

Word Count : 274

Exchange rate overshooting occurs when the exchange rate of a currency deviates significantly from its long-run equilibrium level. There are several reasons why this can happen:

Expectations of future exchange rates: If market participants expect the exchange rate to change in the future, they may adjust their current trading decisions to reflect __________ _________ ________ __________ ________.
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