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:

Variable Administrative Expenses

Expenses within the administration sector that fluctuate with the level of business activity, like sales commissions.

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, used to cover fixed costs and generate profit.

Variable Selling Expenses

Costs that fluctuate with the level of sales activity, such as commissions and shipping fees.

Contribution Margin

The amount remaining from sales revenue after variable expenses are subtracted, used to cover fixed costs and generate profit.