Explain the efficient theory of exchange rate. How different it is from Fundamental and technical views of exchange rate determination? Provide numeric example.
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Explain the efficient theory of exchange rate. How different it is from Fundamental and technical views of exchange rate determination? Provide numeric example.
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Answer:
For the determination of the par values of different currencies, alternative theoretical explanations have been given.
Some of the prominent explanations or theories include: 1. Mint Parity Theory 2. The Purchasing Power Parity Theory 3. The Balance of Payments Theory 4. The Monetary Approach to Foreign Exchange 5. Portfolio Balance Approach.