The ________ approach to the determination of spot exchange rates hypothesizes that the most important factors are the relative real interest rate and a country's outlook for economic growth and profitability.
A) balance of payments
B) parity conditions
C) managed float
D) asset market

Question

Quizplus · Accepted Answer

The asset market approach is based on the analysis of the demand and supply of financial assets denominated in different currencies. The approach hypothesizes that the most important factors for determining spot exchange rates are the relative real interest rate and a country's outlook for economic growth and profitability. The balance of payments approach focuses on the overall supply and demand for a country's currency, while the parity conditions approach examines the relationships between spot and forward exchange rates, inflation rates, and interest rates. The managed float approach refers to a system where the central bank intervenes in the foreign exchange market to influence the exchange rate.

The ________ Approach to the Determination of Spot Exchange Rates