The Theory of ________ States That the Prices of Tradable

question 91

Multiple Choice

The theory of ________ states that the prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes.

• A) supply and demand
• B) purchasing power parity
• C) arbitrage
• D) competitive advantage

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Definitions:

Pre-tax Cost

The cost of an investment or expense before the effect of taxes is taken into account.

Flotation Costs

The expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.

Cost of Equity

The theoretical compensation a company pays to its equity investors for the risk involved in investing in the firm.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the market as a whole.