Which of the following approaches to exchange rate determination postulates that exchange rates are determined in the process of equilibrating or balancing the demand and supply of financial assets in each country?

Question

Quizplus · Accepted Answer

The asset model of exchange rates postulates that exchange rates are determined in the process of equilibrating or balancing the demand and supply of financial assets in each country, including stocks, bonds, and money market instruments. It suggests that exchange rates are influenced by relative interest rates, inflation rates, and economic growth rates among countries. The trade approach to exchange rates focuses on the trade flows and balances between countries, while the elasticities approach emphasizes the responsiveness of exports and imports to changes in exchange rates. None of the above options provide this specific explanation.

Which of the Following Approaches to Exchange Rate Determination Postulates