Exchange Rate
Proponents of the monetary approach to exchange rate determination view the exchange rate as the relative price of two monies (1978) (Hartley, 1983) .
Exchange rates are basically the prices of one currency in terms of other currencies driven by the normal forces of supply and demand (Parveen, Khan, Ismail, 2012)
“They therefore argue that variables affecting the supply of and demand for two monies will affect the rate of exchange between them. Quite a few studies have tested the monetary approach to exchange rate determination and some of the earlier ones are collected in Frenkel and Johnson (1978)” (Hartley 1983)
“There are a fixed number of Euros, Dollars, Yen, etc issued at any given time (although governments can and do print extra money to buy other currencies and impact their currencies value). As the demand increases or decreases for any single currency, it drives the clearing price for that currency” (Parveen, Khan, Ismail, 2012) .
⠀ Hartley, Peter R. (1983). Rational Expectations and the Foreign Exchange Market. Chapter in NBER book Exchange Rates and International Macroeconomics, editor Jacob A. Frenkel. P. 153-188. Published by University of Chicago Press. URL: http://www.nber.org
⠀ Hartley, Peter R. (1983). Rational Expectations and the Foreign Exchange Market. Chapter in NBER book Exchange Rates and International Macroeconomics, editor Jacob A. Frenkel. P. 153-188. Published by University of Chicago Press. URL: http://www.nber.org
⠀ Parveen, S., Khan, A.Q., Ismail, M. (2012). Analysis of the factors affecting exchange rate variability in Pakistan. Academic Research International. Vol. 2, No. 3, May. P. 670-674. URL: www.savap.org.pk