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State and explain the Determinants of Rate of Exchange

State and explain the Determinants of Rate of Exchange

Answers

Wilfred
a) The Mint Power Parity- relates to equating standard coins of different countries in terms of their weights and firmness. Under the gold standard, the mint power parity was fixed by using the weight of gold. Gold was the recognized international currency and where different units were used the nominal rate of exchange reflected their relative gold values as fixed by the metallic content of the standard coins of two countries. The major problem with the mint power parity was that economies had to use the same metallic content for their currency. If two countries were using different metallic content for their currency, it was not possible to arrive at a mint power parity exchange.


b) Purchasing Power Parity- This means that the rate of exchange between two in-convertible paper currencies is the relative purchasing power of the two currencies in their respective countries e.g. KShs notes; UShs notes i.e. the ratio of the home power of the two currencies in terms of goods and services.
Wilfykil answered the question on March 9, 2019 at 08:11

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