Forex In Practice Lecture & Ch 19 & 20 (Final Modified Fall 2007

The document discusses several economic theories about how exchange rates are determined: 1) Supply and demand theory states that exchange rates reflect the supply and demand of currencies, which is influenced by the supply and demand of goods and services in each country. 2) Changes in factors like income, prices, and interest rates in one country compared to another can cause that country's currency to appreciate or depreciate. 3) Investor psychology and herd behavior can also impact exchange rates through speculative actions in currency markets. 4) Government policies around trade, investment, monetary policy, and fiscal policy influence economic fundamentals that impact exchange rates.