In the Spot Market, $1 Is Currently Equal to A$1

question 330

Multiple Choice

In the spot market, $1 is currently equal to A$1.2389. The expected inflation rate in Australia is 5 % and in the U.S. 3.5 %. What is the expected exchange rate one year from now if relative purchasing power parity exists?

• A) A$1.2203
• B) A$1.2246
• C) A$1.2539
• D) A$1.2575
• E) A$1.2648

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Definitions:

Fundamental Attribution Error

The tendency for observers to overemphasize personality traits and underestimate situational factors when explaining others' behaviors.

Situational Attributional Tendency

The tendency to attribute an individual's behavior to situational factors rather than to internal personality traits.

Internal Characteristics

The traits, attributes, or features that originate within an individual's psychological or biological makeup.

Defensive Attribution

A psychological process by which individuals tend to ascribe fewer vulnerabilities to themselves than to others to avoid feeling vulnerable to misfortunes.