Question

The ________ approach states that the exchange rate is determined by the supply and demand for national currency stocks, as well as the expected future levels and rates of growth of monetary stock.

Answer 1

The monetary approach states that the exchange rate is determined by the supply and demand for national currency stocks, as well as the expected future levels and rates of growth of monetary stock.

The monetary approach postulates that the rates of exchange are determined by the balancing of the total demand and supply of the national currency in every country.

According to this approach, the demand for money depends largely  upon the level of real income, the general price level and the rate of interest.

The demand for money is the direct function of the real income and the level of prices. On the other hand, it is the inverse function of the rate of interest. When taken into consideration, the supply of money, it is determined autonomously by the monetary authorities of different countries.

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