Deviations from Purchasing Power Parity Will Be Increasingly Higher as International

question 54

Multiple Choice

Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive.The main reason for this phenomenon is that:

• A)arbitrage activities become less profitable.
• B)governments prefer purchasing power parity not to hold.
• C)the interest rate parity fails to hold.
• D)goods become more differentiated across countries.
• E)individuals develop hatred toward closed economies.

---

Definitions:

Bushels

A unit of volume that is commonly used in agriculture, especially for measuring grains.

Interest Rates

The proportion of a loan or savings amount that is charged as interest to the borrower, typically expressed as an annual percentage.

Put Option

A monetary contract enabling the holder the choice, though not the requirement, to sell an established amount of a base asset at a predetermined rate within a set timeframe.

Hedge

An investment made to reduce the risk of adverse price movements in a security, often by taking an offsetting position in a related security.