Which of the Following Conditions Are Required for Absolute Purchasing

question 38

Multiple Choice

Which of the following conditions are required for absolute purchasing power parity to exist?
I.goods must be identical
II.goods must have equal economic value
III.transaction costs must be zero
IV.there can be no barriers to trade

• A)I and III only
• B)II and IV only
• C)I, III, and IV only
• D)I, II, and III only
• E)I, II, III, and IV

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Definitions:

Diversification

Diversification is an investment strategy that aims to reduce risk by allocating investments among various financial instruments, industries, geographic locations, or other categories.

Portfolio

A collection of investments, such as stocks, bonds, commodities, and real estate, held by an individual or an institution.

Index Model

A statistical model to estimate the returns of a stock based on the returns of a broader market index.

Covariance

A measure of the degree to which two variables move together. In finance, it is used to measure how returns on two assets are related.