The more modern asset market approach to exchange rate determination

Question

Quizplus · Accepted Answer

The more modern asset market approach to exchange rate determination emphasizes stocks of assets rather than import and export demand. This approach suggests that exchange rates are determined by the demand and supply of stocks of assets such as bonds, equities, and real estate, rather than the traditional factors of trade flows and economic fundamentals. In this approach, investors' preferences for different assets determine the demand for currencies needed to purchase those assets, and changes in market sentiment can cause exchange rate fluctuations.

The More Modern Asset Market Approach to Exchange Rate Determination