Which of the Theories of Exchange Rate Determination States the Following

question 16

Multiple Choice

Which of the theories of exchange rate determination states the following? "Increase in the nation's money supply leads to an immediate decline in the interest rate in the nation and a shift from domestic bonds to the domestic currency and foreign bonds……A shift to foreign bonds will then cause an immediate depreciation of the home currency……Overtime this depreciation stimulates nation's exports and discourages the nation's imports."

• A)The Monetary Models of Exchange Rates
• B)Purchasing-Power Parity Theory
• C)Asset or Portfolio Models of Exchange Rates
• D)Trade or Elasticity Approach

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Definitions:

Alternate Dividend Policy

A strategy employed by a company to distribute earnings to shareholders through dividends that may vary in amount and frequency depending on the company's earnings, investment opportunities, and capital needs.

Stock Repurchase

A financial transaction in which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.

P/E Ratio

The price-to-earnings ratio, a valuation metric for stocks calculated by dividing the market value per share by its earnings per share.

EPS

Earnings Per Share, a measure of a company's profitability that is calculated by dividing its net income by the number of outstanding shares.