For Markets to Be in Equilibrium, That Is, for There $\hat{r}$

question 82

Multiple Choice

For markets to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels,

• A) The expected rate of return must be equal to the required rate of return; that is, \( \hat{r} \) = r.
• B) The past realized rate of return must be equal to the expected
• future rate of return; that is, \( \bar{r} \) = \( \hat{r} \) .
• C) The required rate of return must equal the past realized rate of return; that is, r =\( \bar{r} \) .
• D) All three of the above statements must hold for equilibrium to exist; that is \( \hat{r} \) = r = \( \bar{r} \).
• E) None of the above statements is correct.

Understand how exchange rates are determined in flexible exchange rate systems.

Analyze the impact of economic events on national currencies and their exchange rates.

Comprehend the purchasing power parity theory and its implications for exchange rates.

Identify the effects of inflation and interest rates on currency appreciation or depreciation.

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