Explain monetary approach to exchange rate determination, Financial Management

Assignment Help:

Derive and illustrate the monetary approach to exchange rate determination.

Answer: The monetary approach is related with the Chicago School of Economics.  It is relies on two tenets: quantity theory of money and purchasing power parity.  Combing these types of two theories permits for stating, say, the $/£ spot exchange rate is as follow:

S($/£) = (M$/M£)(V$/V£)(y£/y$),

In which M stands for the money supply, V denotes velocity of money, and y stands for national aggregate output.  The theory carries out that what matters in exchange rate determination are:

a. The relative money supply,

b. The relative velocities of monies, and

c. The relative national outputs.


Related Discussions:- Explain monetary approach to exchange rate determination

Profit and loss, how is financial management relevant to profit and loss?

how is financial management relevant to profit and loss?

What do you mean by accrued expenses, Q. What do you mean by Accrued Expens...

Q. What do you mean by Accrued Expenses? Accrued expenses are the expenses which have been incurred but not yet due and hence not yet paid also. These simply represent a liabil

Rationale for mergers, Rationale for Mergers Many of the motives behind...

Rationale for Mergers Many of the motives behind mergers of firms are discussed hereunder: Growth Growth is the most general and important motive for mergers. Merging f

Jit inventory control system primary recuirement, What are the primary requ...

What are the primary requirements for a successful JIT inventory control system? For a JIT system to be victorious the supplier must be willing and able to deliver materials im

Credit risk, A bond investor is always exposed to credit risk. Credit...

A bond investor is always exposed to credit risk. Credit risks can be classified into three types. They are: Default Risk Credit Spread Risk

Components of a callable bond, Components of a Callable Bond A callable...

Components of a Callable Bond A callable bond can be thought of as the sale of a call option by the investor to the issuer as it allows the issuer to repurchase the bond from t

What are the limitations of ratio analysis, What are the Limitations of rat...

What are the Limitations of ratio analysis A ratio on its own is meaningless. Accounting ratios should always be interpreted in relation to other information, for illustration:

Types of dividend policy, TYPES OF DIVIDEND POLICY 1. Regular dividen...

TYPES OF DIVIDEND POLICY 1. Regular dividend policy: Payment of dividend at standard rate is known as regular dividend policy. 2. Stable dividend policy: Payment of fix

Understanding financial metrics and business risk, Controlling is an essent...

Controlling is an essential management function as efficient control mechanisms ensure that the performance of the company increases over time through the incorporation of feedback

Explain the term- authorised and paid-up share capital, Explain the term- A...

Explain the term- Authorised and Paid-up Share Capital Number of shares of stock provided for in Articles of Association of a company is the authorized share capital. This figu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd