If the Exchange Rate Between the U

question 254

Multiple Choice

If the exchange rate between the U.S.dollar and the Mexican peso (pesos per dollar) is less than the relative purchasing power between the two countries,which of the following would be true?

• A)There are opportunities for profit by purchasing goods in the United States and then selling them in Mexico.
• B)Purchasing power parity predicts that the value of the dollar will fall as traders take advantage of arbitrage opportunities.
• C)Purchasing power parity predicts that the dollar is overvalued as traders take advantage of arbitrage opportunities.
• D)There are no arbitrage opportunities for which traders can take advantage.

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