If People Believe That Prices Are Going to Be Higher

question 5

Multiple Choice

If people believe that prices are going to be higher in the future then they are today, they will

• A)wait until the future to purchase the things they wand
• B)decrease their demand now
• C)increase their demand now
• D)increase their supply now
• E)save more today so they have the income to buy more in the future

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Definitions:

Forward Rates

Future interest rates derived from current term structure of interest rates or from the interest rate swap market, predicting future financial market conditions.

Short-Run Exposure

Refers to the degree to which a company's financial performance is affected by fluctuations in foreign exchange rates over a short period.

Home Currency Approach

A method of currency risk management that converts all foreign currencies and related activity into the domestic currency of the company for analysis and reporting.

Foreign Currency Approach

A strategy or method for managing the risks and effects of foreign exchange rate fluctuations on investments or business transactions.