Question #29

Reading: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value

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

Page: 12

Status: Unattempted

Part of Context Group: Q28-29
Shared Context
- Regarding the valuation of INR, Andrews would most likely use: A) Monetary approach. B) Portfolio Balance Approach. C) Mundell-Fleming model.
Question
Under the portfolio balance approach to exchange rate determination, relative to USD, INR would most likely:
Answer Choices:
A. appreciate in the short-term
B. appreciate in the long-term
C. depreciate in the long-term
Explanation
Under the portfolio balance approach, large levels of debt would lead to currency depreciation in the long-term.
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