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Flashcards in Final Exam Deck (6)
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1

Determinants - Parity Conditions

1. Relative inflation rates
2. Relative interest rates
3. Forward exchange rates
4. Interest rate parity

2

Determinants - Asset Market

1. Relative real interest rates
2. Prospects for economic growth
3. Supply and demand for assets
4. Outlook for political stability
5. Speculation and liquidity
6. Political risks and controls

3

Determinants - BOP

1. Current account balances
2. Portfolio investment
3. Foreign direct investment
4. Exchange rate regimes
5. Official monetary reserves

4

Monetary Approach

the exchange rate is the relative price of monies [money stocks]. Not widely used.

5

Purchasing Power Parity Approach

the exchange rate is the relative price of goods. Most widely accepted. Drawback - structural differences and data challenges

6

Asset Market Approach

the exchange rate is the relative price of bonds