The Following Factors May Have an Influence on the Value

question 37

Multiple Choice

The following factors may have an influence on the value of a currency.For which of these is the relative inflation rate of central importance?

• A)Purchasing-power parity
• B)Interest-rate parity
• C)Terms of trade
• D)Current account balance
• E)Speculation

---

Definitions:

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit, often leading to market failure if not corrected by government intervention.

Marginal Cost

The boost in expenditure due to producing an additional unit of a product or service.

Coase Theorem

A principle that suggests that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

Private Parties

Individuals or entities that operate privately, not part of or affiliated with government organisations.