EXCHANGE RATE DETERMINATION - Wendy Jeffus.docVIP

Exchange Rate Determination by Wendy M. Jeffus International Finance Boston College Introduction Exchange rates are prices that are determined by supply and demand. For some countries the exchange rate is the single most important price in the economy because it determines the international balance of payments. (Levich, 2001) There is no general theory of exchange rate determination, but Eiteman et al (2001) divide the potential exchange rate determinants into five areas: parity conditions, infrastructure, speculation, cross-border foreign direct investment and portfolio investment, and po