Asset Approach to Exchange Rate Determination By Ayse Evrensel You can compare the real returns on dollar-denominated securities with the real returns on euro-denominated securities. The market approach is a method of determining the value of an asset based on the selling price of similar assets. The market approach to assets suggests that exchange rates are dictated by a wide variety of commercial asset supply and demand.

Become a member and unlock all Study Answers The balance sheet elements serve as building blocks to create the picture of business value. Assets may be tangible or intangible and can include plant and machinery, IT equipment, buildings and land, vehicles, stocks, investments, intellectual property, goodwill and more. The asset approach to forecasting suggests that whether foreigners are willing to hold claims in monetary form depends partly on relative real interest rates and partly on a country’s outlook for economic growth and profitability. This theory places a much greater emphasis on the role of the exchange rate as one of many prices in the global market for financial assets. The mechanics of market approach involve finding a price multiple of the benchmark, i.e. It is one of three popular valuation methods, along with the cost approach and discounted cash-flow analysis (DCF). The Asset Market Model predicts that flow of funds into equities and bonds market of a country will likely increase demand for it's currency. The interest parity condition can be used to develop a model of exchange rate determination. Under the asset approach you adopt the view of a business as a set of assets and liabilities. Asset valuation is an essential financial process used to determine the fair market value assigned to a specific asset.
Hence the currency of such country must appreciate. The asset-based approach uses the current value of a company’s tangible net assets as the key determinant of fair market value.

Asset approach . price to earnings ratio, EV to EBITDA, price to book value, etc. Asset Approach to Exchange Rate Determination. That is, investor behavior in asset markets which generates interest parity can also explain why the exchange rate may rise and fall in response to market changes. Market approach is a relative valuation approach as it values a business or an intangible asset relative to other actual valuation transactions. Regardless of the asset under valuation, the market approach looks at the prices of comparable assets and makes proper adjustments for different quantities, qualities, or sizes. This is known as the asset approach or portfolio balance approach which explains the real-world events. For instance, when you want to determine the value of a share of stock, you should look at the recent selling price of shares of stock that are similar. The asset approach is one of the three approaches (along with the market approach and income approach) used to estimate enterprise and equity value, and is used in IRC 409A valuations. Asset market approach is a method of long-term foreign exchange rate determination that assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations of drivers.