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According to Purchasing Power Parity Theory, in the Long Run

question 30

Essay

According to purchasing power parity theory, in the long run what would happen to the exchange rate if the price of a computer in the United States = $1,000, the price of a computer in Japan = 200,000 yen, and the current exchange rate was $1.00 = 100 Yen?

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Definitions:

Dividends

payments made by a corporation to its shareholder members, usually derived from the company's profits.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governments, entitling them to receive interest and the return of principal.

Present Value

The value today of a future monetary sum or sequence of cash inflows, calculated with a defined return rate.

Interest Rate

The rate of a loan designated as interest to the borrower, typically represented as an annual percentage of the loan's unpaid balance.

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