factors that affect currency exchange rates
Important position of foreign exchange in international trade resulted in a variety of concepts related to foreign exchange rates had been developed in an effort to determine the factors that influence foreign exchange rates. The concepts relating to the determination of exchange rates began to receive great attention from economists, especially since the birth of a floating exchange rate in 1973. Since then the exchange rate allowed to fluctuate according to fluctuations in the variables that influence it.
The concept of exchange rate determination begins with the concept of Purchasing Power Parity (PPP), then developed the concept with the approach of balance of payments (balance of payment theory). The development of the concept of foreign exchange rate is determined next is the monetary approach (monetary approach). Monetary approach emphasizes that foreign exchange rates as relative prices of two types of currencies, determined by the balance of demand and supply of money. Monetary approach has two basic assumptions, namely the entry into force of purchasing power parity theory and the theory of a stable money demand from a number of aggregate economic variables. This means a model of monetary approach to foreign exchange rates can determined by developing a model of money demand and purchasing power parity models.
Important position of foreign exchange in international trade resulted in a variety of concepts related to foreign exchange rates had been developed in an effort to determine the factors that influence foreign exchange rates. The concepts relating to the determination of exchange rates began to receive great attention from economists, especially since the birth of a floating exchange rate in 1973. Since then the exchange rate allowed to fluctuate according to fluctuations in the variables that influence it.
The concept of exchange rate determination begins with the concept of Purchasing Power Parity (PPP), then developed the concept with the approach of balance of payments (balance of payment theory). The development of the concept of foreign exchange rate is determined next is the monetary approach (monetary approach). Monetary approach emphasizes that foreign exchange rates as relative prices of two types of currencies, determined by the balance of demand and supply of money. Monetary approach has two basic assumptions, namely the entry into force of purchasing power parity theory and the theory of a stable money demand from a number of aggregate economic variables. This means a model of monetary approach to foreign exchange rates can determined by developing a model of money demand and purchasing power parity models.
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