When People Describe What They Think an Exchange Rate Value

question 6

Multiple Choice

When people describe what they think an exchange rate value should be,they often use a benchmark model,known as ________.

• A) purchasing power parity
• B) interest rate parity
• C) the Fisher effect
• D) the International Fisher effect

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Definitions:

Average Accounting Return

A measure used to evaluate the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.

Payback Period

The length of time it takes for an investment to recover its initial outlay of cash, through income or savings.

Profitability Index

A calculation that determines the relationship between the costs and benefits of a proposed project through a ratio derived from present value of future cash flows divided by initial investment.

Net Present Value

An analysis that assesses the worth of a project or investment by comparing all incoming and outgoing cash flows against a discount rate.