Why Do Currency Exchange Rates Throughout the World Trade Within

question 45

Multiple Choice

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?

• A) because of purchasing power parity
• B) because of the international translation effect
• C) because of arbitrage
• D) because of the law of one price

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Definitions:

Corporations

are legal entities that are separate from their owners, providing limited liability protection, and have the ability to own assets, incur liabilities, and sell stock.

Special Purpose Equipment

Equipment that is designed and built for a specific task or function, which is not easily adaptable for other uses.

Common Stock

An equity security that denotes ownership within a corporation and grants the owner voting rights on company issues as well as eligibility to receive dividends.

Par Value

The face value of a bond or stock as stated by the issuing company, which does not necessarily match the market value.