Introduction Factors that affect a country' s money supply or demand are among the most powerful determinants of its currency's exchange rate against foreign currencies a This chapter combines the foreign-exchange market with the money market to determine the exchange rate in the short run It analyzes the long-term effects of monetary changes on output prices and expected future exchange rates Copyright C 2003 Pearson Education, Inc Slide 14-4Copyright © 2003 Pearson Education, Inc. Slide 14-4 Introduction ▪ Factors that affect a country’s money supply or demand are among the most powerful determinants of its currency’s exchange rate against foreign currencies. ▪ This chapter combines the foreign-exchange market with the money market to determine the exchange rate in the short run. • It analyzes the long-term effects of monetary changes on output prices and expected future exchange rates