If the Exchange Rate Between the U

question 103

Multiple Choice

If the exchange rate between the U.S.dollar and the Indian rupee (rupees per dollar) is greater than the relative purchasing power between the two countries,which of the following would be true?

• A)There are opportunities for profit by purchasing goods in India and then selling them in the United States.
• B)Purchasing power parity predicts that the value of the dollar will rise as traders take advantage of arbitrage opportunities.
• C)Purchasing power parity predicts that the dollar is undervalued as traders take advantage of arbitrage opportunities.
• D)There are no arbitrage opportunities for which traders can take advantage.

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Definitions:

Tax Structure

The system or arrangement of taxes levied by a government, including rates, bases, and the rules governing tax liabilities.

Excise Tax

A specific tax levied on certain goods, services, or transactions, often with the aim of reducing consumption or generating revenue.

Elastic Demand

A situation where the demand for a product changes significantly when its price changes.

Elastic Supply

A situation where the quantity supplied of a good or service changes significantly in response to a change in price.