Asked by matheus castro on Jul 01, 2024
Verified
______________ is a theory describing how the level of exchange rates is determined; _____________ describes how exchange rates change over time.
A) Absolute purchasing power parity; uncovered interest parity.
B) Uncovered interest parity; absolute purchasing power parity.
C) Uncovered interest parity; unbiased forward rates.
D) Relative purchasing power parity; exchange rate risk.
E) Absolute purchasing power parity; relative purchasing power parity.
Absolute Purchasing Power Parity
A theory that states the price of goods in one country should equal the price of the same goods in another country when exchange rates are considered.
Exchange Rates
The expression of one currency's value in the terms of the value of another currency.
- Enhance your knowledge of the theoretical principles underpinning the determination and fluctuation of exchange rates, with a particular focus on purchasing power parity and interest rate parity.
Verified Answer
ZK
Zybrea KnightJul 07, 2024
Final Answer :
E
Explanation :
Absolute purchasing power parity describes how the level of exchange rates is determined by comparing the purchasing powers of two currencies. Relative purchasing power parity explains how exchange rates change over time due to differences in inflation rates between two countries.
Learning Objectives
- Enhance your knowledge of the theoretical principles underpinning the determination and fluctuation of exchange rates, with a particular focus on purchasing power parity and interest rate parity.
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