Loan advice

The dividing line between currency economics and long-term valuation analysis is somewhat blurred. There is a difference however and it concerns the time span involved in one’s analysis. The aim of currency economics is to look at the parts of the economy that affect and are affected by the exchange rate, such as the balance of payments and infkation differentials, in order to give an idea about that exchange rate’s current valuation and direction. Long-term valuation models, such as those that focus on REER or FEER, are trying to give a multi-month or more likely a multi-year view of exchange rate valuation. In line with this, the main exchange rate models that focus on long-term valuation are the following:

• Purchasing Power Parity
• The Monetary Approach
• The Interest Rate Approach
• The Balance of Payments Approach
• The Portfolio Balance Approach

Most of these models focus on the relative price of an asset or good which should over time cause an exchange rate adjustment to restore “equilibrium”.