Capital movements are typically the dominant factor in determining exchange rates in the short and medium run.

Question

Quizplus · Accepted Answer

Capital movements, such as foreign investment and portfolio flows, can have a significant impact on supply and demand for a currency, leading to fluctuations in exchange rates in the short and medium term. Other factors, such as trade flows and government policies, also play a role, but capital movements are often seen as the most influential in driving exchange rate movements.

Capital Movements Are Typically the Dominant Factor in Determining Exchange