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Explain the monetary approach to exchange rate determination

Derive & explain the monetary approach to exchange rate determination.

The monetary approach is related with the Chicago School of Economics.  It is depending on two tenets: purchasing power parity & the quantity theory of money.  Combing these two theories let for stating, say, the $/£ spot exchange rate as following:

                                                       S($/£) = (M$/M£)(V$/V£)(y£/y$),

Where M specify the money supply, V is velocity of money, and y is national aggregate output.  The theory holds that what matters in exchange rate determination are following:

1.  The relative money supply,

2.  The relative velocities of monies, and

3.  The relative national outputs.

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