If Exchange Rates Adjust to Reflect Inflation Differentials Across Countries

question 12

Multiple Choice

If exchange rates adjust to reflect inflation differentials across countries, then:

• A) the law of one price is voided.
• B) spot and forward rates will be equal.
• C) nominal interest rates will be equal across countries.
• D)purchasing power parity holds.

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Definitions:

Energizes

Provides with energy or increases vigor.

Directs Behavior

Influences or guides actions and responses of an organism or system in certain situations, often in response to external stimuli or internal states.

Motivated State

A psychological condition in which an individual is driven or moved to behave in a particular way due to internal or external forces.

Physiological Need

A basic bodily requirement that must be met to maintain health and survival, such as the need for food, water, and sleep.