If the Real Exchange Rate Is Greater Than 1, Then

question 67

Multiple Choice

If the real exchange rate is greater than 1, then the

• A)nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas.
• B)nominal exchange rate x U.S. price > foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.
• C)nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would buy more then enough foreign currency to buy the same good overseas.
• D)nominal exchange rate x U.S. price < foreign price. The dollars required to purchase a good in the U.S. would not buy enough foreign currency to buy the same good overseas.

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Definitions:

WACC

Stands for Weighted Average Cost of Capital, which calculates a firm's cost of capital, considering the proportion of each capital component, including debt and equity.

NPV

Net Present Value (NPV) is the calculation used to find today’s value of a future stream of payments, subtracting the initial investment.

Cash Flow

The complete financial movement into and out of a corporation, especially regarding its liquidity.

Equivalent Annual Annuity

A calculation used to compare the returns of investments with different payment schedules by converting them into an equivalent sum received at regular annual intervals.