In a trade-based model of exchange rate determination, the nominal exchange rate

Question

In a trade-based model of exchange rate determination, the nominal exchange rate is determined by:

Purchases and sales of currency arising from imports and exports.

Transactions arising from exchange of assets.

Transactions arising from both current and capital account operations.

None of the above.

Purchases and sales of currency arising from imports and exports.

Transactions arising from exchange of assets.

Transactions arising from both current and capital account operations.

None of the above.

Explanation / Answer

Answer is A

Purchase and sale of currency arising from imports and exports

Capital account is not considered in trade based model

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