If the Cross Exchange Rate of Two Nondollar Currencies Implied

question 24

True/False

If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank, locational arbitrage is possible.

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Definitions:

Monetary Policy

The process by which a central bank or monetary authority manages the supply of money and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Fiscal Policy

Government policies related to taxation and spending that are used to influence the economy, including efforts to manage demand, stimulate economic growth, or control inflation.

Higher Inflation

An economic condition characterized by a significant and rapid increase in the general price level of goods and services in an economy over a period of time.

Tax Cuts

Reductions in the amount of taxes imposed by the government on individuals or businesses.