A key component of the asset approach to exchange rates is being able to accurately gauge:
A) the price level.
B) the rate of inflation.
C) expected future exchange rates.
D) the GDP gap.

Question

Quizplus · Accepted Answer

The asset approach to exchange rates focuses on the expected future exchange rates, which takes into account various factors such as interest rate differentials, economic growth, and political stability. Accurately gauging these factors is essential in determining the value of a currency in relation to another currency. The price level, rate of inflation, and GDP gap may have an impact on the exchange rate, but they are not the primary focus of the asset approach.

A Key Component of the Asset Approach to Exchange Rates