Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?
A) balance-of-payments approach
B) purchasing-power-parity approach
C) asset-markets approach
D) monetary approach

Question

Quizplus · Accepted Answer

The asset-markets approach views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile. It focuses on the supply and demand for assets denominated in different currencies, such as stocks, bonds, and other financial instruments. This approach considers a wide range of factors, including interest rates, economic growth, political stability, and investor sentiment, that can affect the demand for and supply of currencies.

Which Theory of Exchange-Rate Determination Best Views the Foreign Exchange