The Purchasing Power Parity Theory Is a Good Predictor Of

question 101

Multiple Choice

The purchasing power parity theory is a good predictor of:

• A)changes in exchange rates between two third world nations.
• B)the long-run relationship between changes in the price level and the exchange rate of two countries.
• C)interest rate differentials between two countries when there are strong barriers preventing trade between the two countries.
• D)how intervention in exchange markets by central banks influences prices in various countries.
• E)the day-to-day relationship between changes in the price level and the exchange rate of two countries.

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Definitions:

Payment

The act of transferring money or other valuable items in exchange for goods, services, or to fulfill a contractual obligation.

Compounded Semi-annually

Refers to the process where the interest earned on an investment is calculated and added to the principal amount every six months.

GIC

A Guaranteed Investment Certificate, particular to the Canadian market, ensures investors a promised rate of return within a set duration.

Semi-annual Interest

Interest that is calculated and paid twice a year on an investment or loan.