Suppose the Current Exchange Rate Between the U

question 71

Multiple Choice

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.12 = 1 peso.Furthermore,suppose the price level in the United States rises 25 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?

• A) $0.15 = 1 peso
• B) $0.09 = 1 peso
• C) $0.13 = 1 peso
• D) $0.08 = 1 peso

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Definitions:

Discharge

The completion, termination, or fulfillment of a legal obligation, duty, or contract.

Negotiable Instrument

A written promise or order to pay a specific sum of money that is transferable from one person to another.

Reacquisition

The process of buying back or otherwise regaining possession of something previously sold, lost, or given away.

Instrument

A formal legal document, such as a contract, will, bond, lease, or loan, that establishes legal rights and obligations.