Explain the Different Theories of Exchange Rate Determination
The earliest theory of foreign exchange has been the mint parity theory. The balance of payment approach treats exchange rates as determined in flow markets while the asset. Theories Of Foreign Exchange Mba Knowledge Base The floating exchange rates as discussed previously are determined by the market focus of demand and supply. . 3 Asset approach to exchange rates. Third central bank intervention and its effects on exchange rates are discussed. International Fisher Effect IFE Theory 4. The purchasing power parity theory enunciates the determination of the rate. Even with the contrasting literature there was always belief that the PPP theory holds the potential to the theoretical solution to exchange rate determination. This article throws light upon the three theories of determination of foreign exchange rates. These are not influenced by government intervention. Some approaches to exchange rate determina...