If Combine Harvesters Are Cheaper in the United States Than

question 117

Multiple Choice

If combine harvesters are cheaper in the United States than they are in Canada,the law of one price predicts that once exchange rates are taken into account:

• A) the prices of combine harvesters in the two countries will equalize in the long run if transportation costs and tariffs are not a barrier.
• B) Canadian combine harvesters will be exported to the United States if transportation costs and tariffs are not a barrier.
• C) the United States will adopt voluntary restraint agreements with Canada.
• D) the United States will erect tariffs against trade with Canada.

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Definitions:

Strike Price

The predetermined price at which an option's underlying asset can be bought or sold.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuer's equity shares at certain times during its life, usually at the discretion of the bondholder.

Coupon Rate

The annual coupon divided by the face value of a bond.

Conversion Ratio

The number of shares per bond received for conversion into stock.