Exchange Rate Determination Graded Assignment | Read Chapter 12 | Back to Assign
ID: 1114527 • Letter: E
Question
Exchange Rate Determination Graded Assignment | Read Chapter 12 | Back to Assignment Due Friday 12.01.17 at 11:45 PM Average: 13 Attempts: 3. The theory of purchasing power parity Which of the following does the purchasing power parity (PPP) theory state? Aa Aa O In ideally efficient markets, the real purchasing power of a currency should be the same regardless of where it is spent. O The nominal exchange rates should always be the same as the real exchange rates, both in the short run and in the long run. O The cost of an individual good should be higher in countries with higher productivity. Which of the following scenarios illustrates why the PPP may not hold? Check all that apply. The formation of the European Union creates a custom union among its member states, where internally traded goods are not subject to custom duties, tariffs, or import quotas. Cement is very heavy, and the cost of shipping is measured by weight. Small electronic devices, such as digital cameras, are relatively light and can be shipped in bulk. QNA 3.16 2004-2016 Aplia. All rights reserved © 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & Continue Continue without saving Copyright NoticesTerms of Use Privacy Notice Security Notice AccessibilityExplanation / Answer
3.
1.
A. In ideally efficient markets, the real purchasing power of a currency should be the same regardless of where it is spent.
As per the PPP, real purchasing power of a currency will remain same wherever it is spent. So, it will happen in the efficient market.
2.
B. Regarding the transportation cost involved with the cement
Due to the high transportation cost, PPP will not be held trues as the location specific cost will be added. PPP may apply in case of digital cameras since the cost of shipment per piece of camera is negligible. Further, PPP may also hold true in the European Union as there is no nay trade restriction among the member countries.
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