Under the monetary approach to exchange rates, if real money demand is greater at home but relative money supply is greater in foreign markets, then the exchange rate should be:
A) greater than one.
B) equal to one.
C) less than one.
D) There is not enough information provided to answer the question.

Question

Quizplus · Accepted Answer

The monetary approach to exchange rates suggests that exchange rates are determined by the relative supply and demand for different currencies, which in turn are influenced by factors like inflation, interest rates, and economic growth. However, the statement provided does not give specific values or a clear basis for comparing the real money demand and supply between the two markets, making it impossible to determine the specific exchange rate value or its relation to one.

Under the Monetary Approach to Exchange Rates, If Real Money