THE THEORETICAL APPROACHES TOWARDS THE EXCHANGE RATE DETERMINATION

Along with the financial globalization, the questions -such as how the exchange rates are determined, which exchange rate system is advantageous and what kind of potential effects the exchange rates have on the economy- have raised. In this study, the factors which affect the changes in exchange rates are examined in the context of traditional and modern theoretical approaches and whether a specific approach is above the rest or not is questioned. In this regard, together with the fixed systems, flexible systems and the hybrid systems as the convergence of this two extremes; the traditional current account and modern and dynamic capital account originated approaches have been discussed. It is concluded that, considering the variety of social and economic factors under the influence of globalized financial dynamics, any of these approaches are separately inefficient to explain the changes in exchange rates by itself