A Firm That Buys Foreign Exchange in Order to Take

question 19

Multiple Choice

A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is

• A)speculating.
• B)demonstrating purchasing power parity.
• C)engaging in interest rate arbitrage.
• D)responding to fluctuations in the business cycle.

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Definitions:

Nominal GDP

The market value of all final goods and services produced within a country in a given period, measured in current prices.

Quantity Equation

An equation that relates the quantity of money in an economy to the nominal value of economic output.

Price Level

A measure of the average prices of goods and services in an economy at a specific time, indicating the cost of living or inflation.

Classical Dichotomy

The theoretical separation of nominal and real variables in classical economics, implying that monetary changes do not affect real economic variables.