The Reason That the Law of One Price Might Fail

question 34

Multiple Choice

The reason that the law of one price might fail in the short run is that:

• A) prices are sticky and the nominal exchange rate is a financial price and adjusts rapidly to new information
• B) prices are flexible and the nominal exchange rate is a financial price that is sticky
• C) both prices and exchange rates are sticky
• D) both prices and the exchange rate react immediately to new information
• E) None of these answers are correct.

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Definitions:

Exercise

Physical activities undertaken to maintain or improve health and fitness.

Ability

The possession of the means or skill to do something, often considered in context of physical, mental, or learned competencies.

Warm-up

Physical or preparatory activities performed before exercise or a performance to prevent injury and enhance efficiency.

High Intensity

A level of extreme exertion or concentration, often used to describe workouts or activities that require a significant amount of energy in a short period.