In the short run,with floating exchange rates,the exchange rate is determined by:

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Quizplus · Accepted Answer

In the short run, the exchange rate is determined by both the supply and demand for the currency. The supply of a currency reflects the amount of the currency that is available to be traded in the foreign exchange market, while the demand for a currency reflects the desire of others to hold that currency. When there is a higher demand for a currency than there is supply, the exchange rate for that currency will tend to appreciate. Conversely, when there is a higher supply of a currency than there is demand, the exchange rate will tend to depreciate. Therefore, both the supply and demand for the currency play a role in determining the exchange rate in the short run.

In the Short Run,with Floating Exchange Rates,the Exchange Rate Is