Which of the Following Is the Reason for the Failure

question 115

Multiple Choice

Which of the following is the reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates?

• A)The impact of investor psychology on short-run exchange rate movements
• B)The strong relationship between inflation rates and interest rates
• C)The impact of interest rates and short-term exchange rate movements
• D)The strong relationship between interest rate differentials and subsequent changes in spot exchange rates
• E)Government intervention in cross-border trade that violates the assumption of efficient markets

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Definitions:

Trade Barriers

Measures such as tariffs, quotas, and regulations implemented by governments to control international trade and protect domestic industries.

NAFTA

The North American Free Trade Agreement, a treaty between the United States, Canada, and Mexico that eliminated most tariffs and trade barriers between the countries.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than others.

Accounting Services

Professional services that include bookkeeping, audit, tax preparation, financial analysis, and consultancy related to financial management.