Reading 19: Foreign Exchange Parity Relations - LOS g ～ Q Foreign, applies, respect, white, price

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Q6. The law of one price applies with respect to:

A)   both absolute and relative PPP.

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

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

Q7. Which of the following purchasing power concepts depends on the growth rate of prices in two countries?

A)   Absolute PPP.

B)   International Fisher relation.

C)   Relative purchasing power parity (PPP).

Q8. With respect to the relative purchasing power parity (PPP) equation, compounded inflation rates are applicable when:

A)   real interest rates are expected to hold for multiple periods over a certain stated time horizon.

B)   expected exchange rates are expected to hold for multiple periods over a certain stated time horizon.

C)   inflation rates are expected to hold for multiple periods over a certain stated time horizon.

Q9. Suppose the United States and Europe produce only one good, chocolate. The price of chocolate is $8.25/kg in the United States and

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