The Purchasing Power Parity Theory Is a Good Predictor Of

question 101

Multiple Choice

The purchasing power parity theory is a good predictor of:

• A)changes in exchange rates between two third world nations.
• B)the long-run relationship between changes in the price level and the exchange rate of two countries.
• C)interest rate differentials between two countries when there are strong barriers preventing trade between the two countries.
• D)how intervention in exchange markets by central banks influences prices in various countries.
• E)the day-to-day relationship between changes in the price level and the exchange rate of two countries.

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Definitions:

Sales

Transactions involving the exchange of goods or services for money.

Acid Test Ratio

Used to determine the amount of assets that can be quickly turned into cash to pay current liabilities; acid test ratio equals total of cash plus receivables divided by total current liabilities.

Balance Sheet

A summary report detailing a company's assets, debts, and equity held by shareholders at a particular moment.

Income Statement

The financial statement that shows the revenues, the expenses, and the net income for a certain period of time.