If a PPP Estimate of the Dollar/pound Exchange Rate Is

question 13

Multiple Choice

If a PPP estimate of the dollar/pound exchange rate is $1.61/£ and the current spot rate is observed to be $1.68/£, on the basis of these two rates you should, viewing the long run,

• A) expect the pound to appreciate against the dollar.
• B) expect the dollar to appreciate against the pound.
• C) take a "short" position in dollars.
• D) have no expectation regarding the likely movement of the dollar/pound exchange rate.

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Definitions:

U.S. Sugar Producers

Companies or entities involved in the cultivation, processing, and selling of sugar within the United States.

Relaxed Trade Rules

Eased regulatory provisions governing international trade, intended to simplify the process of buying and selling goods across borders.

Euro

The official currency used by the majority of the member countries of the European Union.

EU Countries

Nations that are members of the European Union, a political and economic union of 27 European countries.