Answered: The law of volatility states that…

The law of volatility states that similar goods or commodities in different countries should remain at the same price after conversion of currencies according to current exchange rates.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 3QR

See similar textbooks

Related questions

Q: Explain why a decline in a country's exchange rate will generally increase the demand for its goods…

A: Demand for goods and services by the countries results in trading. Export and imports and the main…

Q: In mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros…

A: In the foreign exchange market, the exchange rate is determined by free forces of demand and supply…

Q: Travis takes two trips to Ecuador. On his first trip, he finds that one US dollar is worth 25000…

A: Exchange rate refers to the amount of domestic currency that required to purchase one unit of…

Q: The rate at which one currency can be exchanged for another is the exchange rate. B) Exchage rates…

A: Exchange rate - The exchange tells us about the worth of the currency of one country in comparison…

Q: What is the current (within the last 48 hours) exchange rate between the U.S. dollar and the Chinese…

A: Exchange Rate: It refers to the value of currency of a country with respect to the value of currency…

Q: Contrast the effects of having a fixed versus a floating exchange rate for a country’s economy

A: Exchange rate are the currency values which are used by the countries for the purpose of imports…

Q: Who would demand U.S. dollars in the foreign exchange market? U.S. firms and households wishing to…

A: Foreign Exchange Market: The foreign exchange market can be defined as an institution which…

Q: In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents…

A: The ratio of a product's percentage change in quantity demanded to its percentage change in price is…

Q: What effect does a high exchange rate have on imports, exports, and that country's production?

A: The rate that measures the value of a nation’s currency in terms of another nation’s currency is…

Q: Suppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of…

A: Exchange rate shows the rate of one currency in terms of other currency. When the value of one…

Q: Suppose that the rate of returns on U.S dollar is 2% and the rate of return on Japanese yen (¥) is…

A: The interest parity condition states, εe=ε(1+ij1+iu) where ij and iu are rates of return on Yen and…

Q: Which of the following is least likely to be a cause of the fluctuation of exchange rates?…

A: Exchange rate represents the price of a currency in terms of another currency. The value of exchange…

Q: Suppose that the rate of returns on U.S dollar is 2% and the rate of return on Japanese yen (¥) is…

A: The exchange rate between two currencies that is expected to win in the spot market on a given…

Q: An appreciation of the dollar against all currencies in the foreign exchange market would result in…

A: The appreciation of the currency means increase in the value of the currency in relative to foreign…

Q: The gold standard caused the fluctuations of exchange rates between countries True or false

A: In the international market, the value of a currency depends upon its demand and supply, but its…

Q: The price of apple jelly in the United Kingdom is £1. If the exchange rate is £1 = $2, the price of…

A: If the price of apple jelly in the United Kingdom is £1, and the exchange rate is £1 = $2, you can…

Q: , the fixed exchange rate between the British pound and the U.S. dollar was 1 pound equals $5. What…

A: The exchange rate of a currency is refer to a rate by which we can exchange one currency into…

Q: The euro/dollar exchange rate is 1 euro = $1.20. According to the law of one price, a camera that…

A: A swapping scale system or exchange rate is the way a country deals with its cash in the unfamiliar…

Q: Given the definition of the exchange rate , if the Canadian dollar is the domestic currency and US…

A: The exchange rate between two currencies is the price of one currency in terms of another currency.…

Q: Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption,…

A: Disclaimer :- as you posted multipart questions we are supposed to solve the first 3 questions only.…

Q: When you write an exchange rate in terms of how many units of a foreign currency it takes to buy one…

A: A direct quote depicts the amount of foreign currency that can be bought for a certain unit of the…

Q: Discuss three factors that would impact the values of the major currencies in foreign exchange

A: Foreign exchange is also called forex or FX, which refers to the exchange of one currency to another…

Q: The autonomous region of Catalonia has recently declared independence from Spain, and is looking for…

A: Answer -

Q: Identify two factors (or characteristics of economy) that underlie a nation’s decision to adopt a…

A: Foreign exchange market is an international mechanism for foreign currency purchases and selling.…

Q: offee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ,…

A: The nominal exchange rate—the price of a dollar in the US, for instance—and the ratio of prices in…

Q: Country A follows a fixed exchange rate policy that pegs its currency to the currency of country B,…

A: We consider country A as the domestic country and country A's currency as the domestic currency for…

Q: Relative inflation rates affect interest rates, exchange rates, the overall economic health of a…

A: please find the explanation below.

Q: Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt…

A: The exchange rate refers to the price of one nation's currency in terms of another nation's…

Question

33
The law of volatility states that similar goods or commodities in different countries should remain at the same price after conversion of currencies
according to current exchange rates.
True or False
True
False

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: The law of one price.

VIEW

Step 2: Prices equalize through arbitrage.

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
Why does the trade balance and the current account balance track so closely together over time?
What does it mean to say that a currency appreciates? Depreciates? Becomes stronger? Becomes weaker?
Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of 100 billion, total domestic savings of 1,500 billion, and total domestic physical capital investment of 1,600 billion. According to the national saving and Investment Identity, what will be the current account balance? What will be the current account balance if Investment rises by 50 billion, while the budget deficit and national savings remain the same?
Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound. How will that affect the demand for pounds. supply of pounds, and exchange rate for pounds compared to, say, U.S. dollars?
Suppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?
Why would a nation dollarizeâ€”that is, adopt another countrys currency instead of having its own?
A10
Anna has the option to purchase a laptop from the U.S. or Japan. The lap top U.S. price inthe U.S. is 340 dollars and in Japan, the same laptop costs 38,000 Japanese yen. If youknow that each 3.4 U.S. dollars are equivalent to 372.26 Japanese Yen. Find the U.S.nominal exchange rate? Find the U.S. real exchange rate? Assume there are no shippingexpenses, should Anna buy the laptop from the U.S. or Japan?
Ac Fraw MAA International Finance: Quir 9 23300 OEUROPILE Suppose the cost of a car produced in the United States is $17,000. The current exchange rate is US$10.50 Instructions: Round your answers to two decimal places. a What is the cost of the car in euros? C C ZOMBIE b. Suppose the exchange rate changes to US$1 C0.65 What is the new euro cost of the car? € c At the new exchange rate, the quantity of U.S. cors demanded by those holding euros will likely (Click to seet) H N PRINC Help + Save & Ext
The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 euros