Exchange Rates Will Equalise Purchasing Power Parity in the Long

question 121

Multiple Choice

Exchange rates will equalise purchasing power parity in the long run unless:

• A)all products can be traded internationally.
• B)products do not differ across countries.
• C)countries practise free trade.
• D)countries impose barriers to trade, such as tariffs and quotas.

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Definitions:

Unlevered Cost

The cost of investment or project financing without taking into account the impact of leveraging or borrowing.

Capital Structure

The mix of debt and equity financing used by a company to fund its operations and growth.

Interest Tax Shield

Deducting interest expenses on debt from taxable income leads to a reduction in income tax liability.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which constitute its funding.