The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets
A) balance of payments
B) monetary
C) asset market
D) law of one price

Question

Quizplus · Accepted Answer

The asset market approach suggests that exchange rates are determined by the supply and demand for a wide range of financial assets such as bonds, stocks, and other securities. This approach emphasizes the role of speculation and investor expectations in influencing exchange rates, as supply and demand for assets are influenced by various economic and political factors beyond traditional trade flows. The balance of payments approach focuses on trade flows and capital flows, while the monetary approach emphasizes the relationship between interest rates and exchange rates. The law of one price refers to the idea that identical goods should have the same price in different markets once the exchange rate is taken into account.

The ________ Approach Argues That Exchange Rates Are Determined by the Supply