The Idea That the Exchange Rate Adjusts to Keep Buying

question 19

Multiple Choice

The idea that the exchange rate adjusts to keep buying power constant among currencies is called:

• A) the unbiased forward rates condition.
• B) uncovered interest rate parity.
• C) the international Fisher effect.
• D) purchasing power parity.
• E) interest rate parity.

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Definitions:

Expand

To express a mathematical expression in an extended form by removing parentheses or factoring, usually by applying the distributive property.

Binomial Theorem

A formula for expressing the powers of sums, which identifies the expansion of a binomial raised to any positive integer power.

Approximate

To estimate or come close to an actual value, not exact but within a reasonable range.

Binomial Coefficient

A numerical factor that represents the number of ways to choose a subset of elements from a larger set, commonly expressed as "n choose k."