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:

Z Test Statistic

A type of statistical test where the test statistic follows a normal distribution under the null hypothesis.

Population Proportion

The fraction or percentage of a population that possesses a particular attribute or characteristic.

Sampling Distribution

The framework of distributed probabilities for an established statistic, gathered from random sampling.

Approximately Normal

Describing a distribution that resembles the bell-shaped curve of a normal distribution, especially when certain statistical conditions are met.