The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports) form the basis for the

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This describes the balance of payments theory of exchange rates, where shifts in exchange rates are believed to be influenced by changes in trade balances, which result from changes in the supply and demand of exports and imports. The other theories mentioned (purchasing power, interest rate parity, and government intervention) focus on different factors that may influence exchange rates.

The Belief That Shifts in Exchange Rates Result from Increasing