Abstract
Exchange rate determination is very important for financial economists, financial institutions, foreign currency traders, and all professionals in the foreign currency market. This chapter is based on discussions of exchange rate determination on a school of thought, using the asset market approach to solve complex problems. We will explore the different determinants of exchange rates and the theories that deal with its determination. These theories are (a) the monetary approach, divided into the monetarist model (flexible prices) and the overshooting model (sticky prices) and (b) the portfolio balance approach. Other related issues with the exchange rate theories will be discussed, such as efficiency in the foreign exchange market, exchange rate expectations and the “News,” money market and exchange rate, exchange rate and freezing funds risk premium (FFRP), public policies and exchange rate, and lastly, oil prices and Euro-zone debt crisis and exchange rates.
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Kallianiotis, J.N. (2013). Foreign Exchange Rate Determination. In: Exchange Rates and International Financial Economics. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137318886_3
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DOI: https://doi.org/10.1057/9781137318886_3
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