Reading 19: Foreign Exchange Parity Relations - LOS g ～

答案和详解如下：

6．The law of one price applies with respect to:

A)   relative PPP, but does not apply to absolute PPP.

B)   both absolute and relative PPP.

C)   absolute purchasing power parity (PPP), but does not apply to relative PPP.

D)   all competitive markets around the world efficiently.

The correct answer was C)

The law of one price focuses on a single, clearly comparable good and states that the same good should have the same real prices in all countries. Absolute PPP is an average version of the law of one price. Rather than focusing on a single good, absolute PPP focuses on a weighted average price level of a representative basket of goods and services. Relative PPP holds that exchange rate movements reflect differences in inflation rates between countries. The relative version depends on the growth rates of prices in two countries. It is the rate of inflation (i.e., the relative rate of change in prices) that is critical here.

7．Which of the following statements regarding purchasing power parity (PPP) is FALSE?

A)   Under absolute PPP the foreign price level expressed in domestic currency terms should be equal to the domestic country’s price level.

B)   Relative PPP states that prices for goods and services are the same whether it is for one good or for a basket of goods.

C)   Absolute PPP is similar to the law of one price, except it concerns a basket of goods rather than a single good.

D)   If prices rise by 10% in a foreign country, exchanges rates can be expected to move by 10% to offset the price increases and maintain equilibrium in the cost of a basket of goods.

The correct answer was B)

Relative PPP does not state that prices for goods and services are the same, only that the rate of change in the FX rate is a function of the inflation differentials between the two countries.

8．The law of one price is:

A)   inconsistent with purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

B)   unaffected by tariffs and transportation costs in practice.

C)   not dependent on the potential for arbitrage profits to hold in practice.

D)   consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

The correct answer was D)

The law of one price is consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

9．The law of one price is:

A)   inconsistent with purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

B)   unaffected by tariffs and transportation costs in practice.

C)   not dependent on the potential for arbitrage profits to hold in practice.

D)   consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

The correct answer was D)

The law of one price is consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

10．The law of one price is:

A)   inconsistent with purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

B)   consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

C)   unaffected by tariffs and transportation costs in practice.

D)   not dependent on the potential for arbitrage profits to hold in practice.

The correct answer was B)

The law of one price is consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

11．The law of one price is:

A)   inconsistent with purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

B)   unaffected by tariffs and transportation costs in practice.

C)   consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.

D)   not dependent on the potential for arbitrage profits to hold in practice.

The correct answer was C)

The law of one price is consistent with absolute purchasing power parity (PPP) because it states that identical goods should have the same price in all locations after adjusting for exchange rate effects.