QUESTION 47 means that the price of similar goods is the same, regardless of which currency one uses to buy the goods. A) Interest rate parity B) Purchasing power parity C) Currency parity D) Expectation parity A O O O
QUESTION 47 means that the price of similar goods is the same, regardless of which currency one uses to buy the goods. A) Interest rate parity B) Purchasing power parity C) Currency parity D) Expectation parity A O O O
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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47
Transcribed Image Text:QUESTION 47
means that the price of similar goods is the same, regardless of which currency one uses to buy the goods.
A) Interest rate parity
B) Purchasing power parity
C) Currency parity
D) Expectation parity
A
O O O
Expert Solution
Step 1
Interest rate parity states that the difference between the interest rate of two currencies would b similar to the difference between forward exchange rate & spot rate.
Purchasing power parity states that the price of goods will remain the same irrespective of the currency that is being used to buy the goods. Hence purchasing power would act as a constant when deciding on the exchange rate for the currencies of two different countries.
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