The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports) forms the basis for the
A) purchasing power theory of exchange rates.
B) interest rate parity theory of exchange rates.
C) balance of payments theory of exchange rates.
D) government intervention theory of exchange rates.

Question

Quizplus · Accepted Answer

The belief that shifts in exchange rates result from increasing or decreasing demand for a country's exports (or the corresponding opposite movements in supply of a country's imports) is the basis of the balance of payments theory of exchange rates. This theory suggests that a country's balance of payments (the difference between its exports and imports) influences the exchange rate of its currency.

The Belief That Shifts in Exchange Rates Result from Increasing