Question

What are the three basic theoretical approaches to exchange rate determination?

Answer 1

The three basic theoretical approaches to exchange rate determination are Purchasing Power Parity,Balance of payment Approach and Asset market approach.
Purchasing Power Parity Approach is economic theory which states that exchange rate between two countries is determined by the ratio of domestic price relative to foreign price.
Under Balance of payment Approach ? exchange rates are determined by supply and demand of foreign exchange.
Under Asset market approach exchange rates are determined by supply and demand of varies types of financial assets.