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There are two questions related to Exchange Rate Determination 1.In a free market, what determines exchange...

There are two questions related to Exchange Rate Determination 1.In a free market, what determines exchange rates in the long run and the short run? 2.What is the asset market approach to exchange rate determination?

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Exchange rate determination- [1) Shot run determinants of erchange -ate- e have seen that in the shostunechan rates are determ ined Panikd, ie, the cond i hon, that the netros on depockk n alifferent curyencierst be equal cohen expmesced in a common CuYenc un covered tesne we have alco Seen that hont - Yan interes ae ane detemined the ensality of demand Suppli of mon6e 术 an open economy, these two condi Hoo must becati fied Simul taneouly we can se the simultaneus atis faction of tese condi Hoos to See ho echange rates depends on the de fexminank op equilbrfum in clormes tie money omestic mon manket, e, the ice leel ,seal o and the mmey suppl ton-u determinantt o e change ate ihin a centaythe value of stelng againg te dolla fell about 3 times, Ialut one quof the centryea The value of the drachma againsdollar fel ) 5 Qbout acozen timer 냐To analyze -these trends we need to adopt a tong tevn apponpach t ezcharge vate deteminaton raloThe law one paice- s nothing i Lage Por the acc umptioo that e mahe i -heory of intenato -al tade, that wt free trade and compeihie markels the levant Pnoduct p ualized acoss countries ices ae The theory of unchasing Poer t at He level xchange ae the pice evel of the two countiies, uwhen one com bine the theo pchan -ch to the determinaton o exchange vates, b lo It that -he level crrrencies of d2 countries equals to e ratio e rya tes: The mone tal appsoace, to echang patwth long un eguit market then one end upoith the monetary a Long-tenpice levels ar de ter the craHo 아 tte noni nal money 乀up pl2d and cal mone derna n d each conto nccdding to the mone lory appoach lon tem erchange rater are determined relative evolution of 寸わe money supply Vaniouc countylerand the nelatve evolution a the facforsaffecing the demando ai a eal and nominnteres yates the i the Y mone() Acet manket app9no ach to exchange nato determinatbn x Exchange ater vecedtompare internaton e inte ationq porices de and cevices, The ane alto sed to compane the neturn on fonei g curene den denominat -ed tocks and ondr to a ets よ가e Focul atten tion thi cappanoa chwa international TMde floor as Pinay det γ9 determinan exchange -the-ole of acchange· 3ate ehanges in domina -Hon ?ntenaronal trade imbalances Luggests that countvier uotth tiade defcts chould have d. an appsiciatin cu rryency Where acountie w tnade deßrait should have depaeciai ng cumencies K n recent yeas, due to inandal bernlzaHon ear S the volume iotea national thadein Jinancial acsete er ceeded tra de in 0odr and cesvi cer wheno Countyies wr tnade upluses have depaeatna Cur oheγeas Court), es with tra de Surpluses have. dep91ǐ ciating cumen les where a count vie up tyade defiatr have appseciatin Curenéte The dollon Intererr ra te s,mply 덕 netu10 on dollar. deposits , similarly, a foreign the dollar rato cwnenay inteetnate meaturer the foretgn that Currenu

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