On Behalf of Your Firm, You Make Frequent Trips to Hong

question 42

Multiple Choice

On behalf of your firm, you make frequent trips to Hong Kong. You notice that you always have to pay more dollars to get enough local currency to get your suits dry-cleaned than you have to pay to get your suits dry-cleaned in Canada. Is this consistent with purchasing-power parity?

• A) No, but it might be explained by limited opportunities for arbitrage across international borders.
• B) Yes, if prices in Hong Kong are rising more rapidly than prices in Canada.
• C) Yes, if prices in Hong Kong are rising less rapidly than prices in Canada.
• D) No, but it can be explained by arbitrage across international borders.

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Definitions:

Direct Labor Hours

The total number of hours worked by employees who are directly involved in the production process of goods or services.

Decentralized Operations

A business structure where decision-making is distributed among various levels or locations rather than concentrated at a single point.

Responsibility Accounting

A system of accounting that collects, summarizes, and reports financial information relating to the responsibilities of individual managers.

Controllable Costs

Costs that a manager or company has the power to influence or change directly.