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CFA Level 2
Economics

Exchange Rate Models and Economic Variables

Medium Currency Exchange Rates Exchange Rate Models

A multinational corporation (MNC) is evaluating the impact of various economic factors on its exchange rate predictions for the euro against the U.S. dollar. In their analysis, they consider interest rate differentials, inflation rates, and capital flows. Based on economic theory, which of the following models provides a comprehensive framework to explain how exchange rates are determined by these economic variables?

Hint

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