Suppose the Current Exchange Rate Between the U

question 71

Multiple Choice

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.12 = 1 peso.Furthermore,suppose the price level in the United States rises 25 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?

• A) $0.15 = 1 peso
• B) $0.09 = 1 peso
• C) $0.13 = 1 peso
• D) $0.08 = 1 peso

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Definitions:

Contribution Margin Ratio

A financial metric that shows what portion of sales revenue is available to cover fixed costs and generate profit after variable costs have been paid.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance premiums.

Break-Even Point

The sales level at which a business neither makes a profit nor incurs a loss.

Variable Expenses

Expenses that vary directly with the amount of production or the degree of business activity.