Traditional view points out that exchange rates should adjust the purchasing power of the two currencies. Other approaches indicate that other economic variables should also affect exchange rates.

The fundamental value of exchange rates could be determined by apply relative purchasing power parity (PPP). Critically explain this approach and its usefulness in predicting exchange rate movements on a short-term basis and long-term basis.

An analysis of the balance of payments (BOPs) provides the first approach to the economic modelling of the exchange rate. With appropriate diagrams, critically explain the BOP approach and illustrate the exchange rate determination of this approach using the current BOPs of the US and China.

The Federal Reserve implemented several rounds of Quantitative Easing (QE) during the crisis in year 2008 and year 2020. Critically discuss whether the influences of QEs on the interest rate and price level are consistent with the predictions of Asset Market Approach.