Exchange rate movements and their explanation

Focusing on the intricacies of exchange rate movements, this seminar paper explores four theoretical frameworks: the Monetary Fundamentals approach, the Macroeconomic Balance approach, the Dispersed Information or Microstructure approach, and the dealer-based explanation. Each model is succinctly outlined with its assumptions and evaluated based on its time horizon—short, medium, or long-term. The paper contrasts these approaches, assessing their strengths and weaknesses while establishing connections among them, providing a comprehensive analysis of exchange rate theories.