If Changes in the Exchange Rate Are Determined by the Difference

question 189

Multiple Choice

If changes in the exchange rate are determined by the difference in inflation rates between two countries then ________________ holds.

• A) Relative purchasing power parity.
• B) Interest rate parity.
• C) The unbiased forward rates hypothesis.
• D) Uncovered interest parity.
• E) Triangle arbitrage.

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Definitions:

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, indicating the percentage of tax applied to their highest level of income.

DAX

The Deutsche Aktienindex, a stock market index consisting of the 40 major German companies trading on the Frankfurt Stock Exchange.

German Stock Market

The stock market based in Germany, primarily represented by the Frankfurt Stock Exchange, where securities of German companies are traded.