If PPP Theory Were Perfectly Valid,movements in Nominal Exchange Rates

question 55

Multiple Choice

If PPP theory were perfectly valid,movements in nominal exchange rates

• A)would never occur,so that inflation differentials would cause fluctuating real exchange rates.
• B)would be amplified by inflation differentials into wider movements of real exchange rates.
• C)would counteract inflation differentials and create equal movements in the real exchange rates.
• D)would be matched by inflation differentials in such a way that real exchange rates never change.

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Definitions:

Right Of Appraisal

See dissenter’s rights.

Reverse Share Split

A corporate action in which a company reduces the total number of its outstanding shares, typically to increase the per-share price.

Fractional Shares

Shares of stock that are less than one full share, which can occur through dividend reinvestment plans or stock splits.

Duty Of Care

A legal obligation to avoid acts or omissions that could likely cause harm to others.