Question #27 - Reading 5 Currency Exchange Rates - Understanding Equilibrium Value

Reading: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value

PDF File: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value.pdf

Page: 11

Status: Unattempted

Correct Answer: B

Shared Context

- The current mark-to-market value of the EUR forward contract is closest to: A) –USD 15,889,620. B) USD 15,976,000. C) –USD 15,973,205.

Question

Regarding the valuation of INR, Andrews would most likely use:

Answer Choices:

A. Monetary approach

B. Portfolio Balance Approach

C. Mundell-Fleming model

Explanation

Portfolio balance approach focuses on long-term implications of fiscal policy on exchange rate. Monetary approach focuses on implications of monetary policy while Mundell- Fleming model focuses on short-term implications of monetary/fiscal policies.

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