Suppose Absolute Purchasing Power Parity Holds

question 142

Multiple Choice

Suppose absolute purchasing power parity holds. The exchange rate quoted in The National Post for Indian rupees 0.02312. If an automobile costs $35,000 in Canada, how much should the same
Car cost in India?

• A) Rs 442
• B) Rs 809
• C) Rs 822
• D) Rs 65,293
• E) Rs 1,513,841

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Definitions:

Basis Risk

Risk that futures prices will not move directly with the cash price hedged.

May Coffee Futures

Contracts for the future delivery of coffee that are due in May, used for hedging and speculative purposes in the commodities market.

Settlement Value

The final value at which a futures contract is settled upon expiration or closing.