One Way by Which the World Bank Converts Gross National

question 23

Multiple Choice

One way by which the World Bank converts gross national income (GNI) figures to dollars is to take the GNI in a local currency and convert using the exchange rate, averaged over a three-year period in order to smooth out the effects of currency fluctuations. Which of the following is a shortcoming of this method for international comparisons of standards of living?

• A) Currency exchange rates may fluctuate drastically from year-to-year.
• B) A country could have a relatively high standard of living but, for a variety of reasons, a low exchange rate.
• C) This method cannot be applied to countries that have fixed exchange rates.
• D) The method does not take into account trade conducted on the basis of barter.

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Definitions:

Coupon Rate

The annual interest rate paid by a bond issuer to its bondholders, expressed as a percentage of the bond's face value.

Inflation Rate

The speed at which prices for products and services ascend, resulting in a decline in how much can be bought.

Market Conversion Value

The value of a convertible security if it is converted into a different form, usually stock, at its current market price.

Conversion Ratio

The number of common shares received upon the conversion of a convertible security, such as a convertible bond or preferred stock.