If the Nominal Exchange Rate Between the Dollar and the Thai

question 6

Multiple Choice

If the nominal exchange rate between the dollar and the Thai baht (baht per dollar) is lower than the relative purchasing power between the two countries,which of the following would be true?

• A) Purchasing power parity predicts that the value of the dollar will fall as traders take advantage of profit opportunities.
• B) Purchasing power parity predicts that the baht is undervalued as traders take advantage of profit opportunities.
• C) There are opportunities for profit by purchasing goods in Canada and selling them in Thailand.
• D) There are no opportunities for profit by purchasing goods in one country and selling them in the other.