The Asset Market Approach to Exchange Rate Determination

question 19

Multiple Choice

The asset market approach to exchange rate determination

• A) suggests that investors will hold monetary claims if the rates are low.
• B) suggests that investors will hold monetary claims if they feel optimistic about country's outlook for growth and profitability.
• C) states that equilibrium exchange rate is found when the net inflow (outflow) from current account matches the net outflow (inflow) from financial account.
• D) discards the importance of corporate governance to cross-border portfolio investors.

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Definitions:

Information

In the context of finance, information refers to data regarding market trends, individual securities, economic indicators, and other factors that influence investment decisions.

Insider Trade Disclosures

Legal filings that publicly disclose trades of company securities made by company insiders, enhancing transparency and maintaining investor trust.

Trading Costs

Expenses associated with buying and selling securities, including commissions and slippage.

Beta

A measure of a stock's volatility in relation to the market; a beta greater than one suggests greater volatility than the market, while a beta less than one indicates less.