14-55 Deviations from the International Currency Parity Relationships May Occur

question 94

Multiple Choice

14-55 Deviations from the international currency parity relationships may occur because of

• A)free capital movements across national boundaries.
• B)barriers to cross-border financial flows.
• C)perfect rationality of market participants.
• D)differences in each country's productive capacity.
• E)Basel capital regulations.

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Definitions:

Deflation

A decrease in the general price level of goods and services over time.

High Inflation

A situation where the price level of goods and services rises rapidly and consistently, eroding purchasing power.

Inflation

The speed at which the overall price level for goods and services increases, leading to a decrease in purchasing power.

Economy's Price Level

The general level of prices for goods and services across an economy, indicating the purchasing power of the country's currency.