If the Exchange Rate Between the Canadian Dollar and the Indian

question 186

Multiple Choice

If the exchange rate between the Canadian 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 Canada.
• 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.
• E)Indian workers are more productive than Canadian workers.

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Definitions:

Direction of the Relationship

Refers to the way two variables relate to each other in a study, indicating whether an increase or decrease in one variable results in an increase or decrease in the other.

Correlation Coefficient

A numerical indicator that shows how much two or more variables move in unison.

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Research Methods

Systematic strategies, techniques, and approaches used to conduct scientific investigations and gather empirical data.