Which of the Following Approaches to Exchange Rate Determination Postulates

question 31

Multiple Choice

Which of the following approaches to exchange rate determination postulates that exchange rates are determined in the process of equilibrating or balancing the demand and supply of financial assets in each country?

• A)The asset model of exchange rates
• B)The trade approach to exchange rates
• C)The elasticities approach to exchange rates
• D)None of the above

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Definitions:

Profitability Index

A calculation used to assess the relative profitability of an investment, computed as the present value of future cash flows divided by the initial investment cost.

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specific interest rate.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.

Interest Rate

The percentage charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage of the principal.