A key assumption behind the explanation of exchange rate determination in the short run is

Question

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The key assumption behind the explanation of exchange rate determination in the short run is that exchange rates represent prices of financial assets in one currency relative to prices of similar financial assets in another currency. This means that the exchange rate is determined by the supply and demand of currencies in financial markets, which are influenced by factors such as interest rates, inflation, and changes in expectations. Trade barriers and changes in price levels may also have an impact on the exchange rate in the short run, but they are not the key factors determining it.

A Key Assumption Behind the Explanation of Exchange Rate Determination