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    Expectations Theory of Exchange Rate

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    Explain the Expectations Theory of Exchange Rate. Explain Purchasing Power Parity.

    © BrainMass Inc. brainmass.com October 9, 2019, 7:32 pm ad1c9bdddf

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    Foreign exchange refers to money denominated in the currency of another country. The forex market is essentially governed by the law of supply and demand and is generally not regulated by any government or coalition of governments. This is true in the U.S., where participation in the forex market is not regulated. But there are certain theory which also explains the movement and determination of exchange rate. These are :

    Expectations theory of forward exchange rates
    A theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange ...

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    This posting explains the Expectations Theory of Exchange Rate.