The Purchasing Power Parity Theory of Exchange Rate Determination Maintains

question 206

Multiple Choice

The purchasing power parity theory of exchange rate determination maintains that

• A)the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency.
• B)the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations.
• C)in the short run, exchange rates are determined by central bank intervention in the currency markets.
• D)the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank.

---

Definitions:

Foreign Licensing

A business arrangement where a firm allows another business in a different country to produce and sell its products under its brand in exchange for a fee or royalty.

Contract

A legally binding agreement between two or more parties that outlines obligations and rights.

Distribution

The process by which goods or services are made available to consumers through a supply chain.

Export Management Company

A business that acts as an intermediary between domestic manufacturers and foreign buyers, managing the export process.