Absolute PPP holds for a product bundle if:A: there exists free trade in all the commodities.B: the

goods are traded with minimum transportation costs.

C: the law of one price holds for each of the goods in the bundle.

The monetary approach to exchange rates is generally:

A:successful in explaining short- and long-term exchange rates.

B: successful in explaining long-term exchange rates but not short-term exchange rates.

C: of no value for explaining short- or long-term exchange rates.

Which of the following is the least accurate statement about purchasing power parity (PPP)?

A: PPP predicts most accurately when looking at the largest measure of price levels such as all products in the GDP.

B: If absolute PPP is true at all times, then relative PPP is also true.

C: Relative PPP predicts better over the long term rather than the short term.

Everything else remaining unchanged, a decrease in interest rates in the United States is most likely to result in:

A: depreciation of the dollar.

B: capital outflows into the United States.

C: a decrease in the demand for dollar-denominated financial assets.

While the causes of changes in short-term floating exchange rates are difficult to determine, long-term changes in floating exchange rates are related to:

A: political risks.

B: Eurocurrencies.

C: economic fundamentals.

What implications for international financial repositioning and for the current spot exchange rate would flow from a decrease in the expected future spot rate value of a country’s currency?

A: Repositioning toward this country’s currency assets results in the country’s currency depreciating.

B: Repositioning toward foreign currency assets results in this country’s currency depreciating.

C: Repositioning toward foreign currency assets results in this country’s currency appreciating.

There is a hypothesis in international economics that the pressure from speculators on the supply of and demand for a specific currency should:

A: make the current forward exchange rate equal the average future expected spot exchange rate on the exchange date.

B: make the current forward exchange rate equal to the current spot exchange rate.

C: cause the country whose currency is involved to devalue the currency before the expected exchange date.

If the interest rate on two currencies is different, but the currency with the lower interest rate is expected to appreciate by the difference in the interest rates, there is a condition of:

A: uncovered interest parity.

B: fully hedged positions.

 

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