Assuming the Theory of Purchasing Power Parity Holds, What Is

question 35

Multiple Choice

Assuming the theory of purchasing power parity holds, what is the exchange rate between the United States and Mexico if the price of an identical Under Armour shirt costs $25 in the United States and 350 pesos in Mexico rounded to the nearest penny) ?

• A) $0.07 per peso
• B) $14.00 per peso
• C) $0.70 per peso
• D) $0.88 per peso
• E) $0.14 per peso

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders, and has its own rights and obligations.

Treasury Stock

Shares that were once part of the outstanding shares but were bought back by the company, reducing the amount of stock on the open market.

Loss On Sale

A financial term representing the situation where the selling price of an asset is less than its purchase price.

Common Shares

Equity securities that represent ownership in a company, giving shareholders voting rights and a share in the company’s profits through dividends.