In a Competitive Foreign-Exchange Market Between the Canadian Dollar and the British

question 29

Multiple Choice

In a competitive foreign-exchange market between the Canadian dollar and the British pound,a price of pounds (in terms of dollars) below the free-market equilibrium would

• A)result in the quantity of pounds supplied being greater than the quantity demanded.
• B)indicate that all people who wish to purchase pounds will be able to do so at the current exchange rate.
• C)lead to an appreciation of the dollar.
• D)result in a sustained shortage of pounds.
• E)lead to a depreciation of the dollar.

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Definitions:

Deferred Gain

A profit from the sale of property or an investment that has been realized but not recognized for tax purposes in the current period.

IRC Section 121

A provision in the Internal Revenue Code that allows homeowners to exclude up to $250,000 ($500,000 if married filing jointly) of capital gains on the sale of their primary residence, subject to certain conditions.

Receipt of Boot

Tax term referring to non-like-kind property or cash received in an exchange, which may trigger taxable gain.

Like-kind Exchange

A tax-deferred exchange of similar properties under section 1031 of the U.S. Tax Code.