Currencies – U.S. dollar foreign-exchange rates. May 5, 2011 Country/currency………
ID: 2735592 • Letter: C
Question
Currencies – U.S. dollar foreign-exchange rates. May 5, 2011
Country/currency………..in US$..............per US$
British Pound……………….1.5347…………….0.6516
Norwegian Kroner……….0.1690……………..5.9173
Thai Baht……………………..0.0310……………..32.250
The price of an ounce of gold in New York is $1,950, and the price of the same ounce of gold in London is 1,285 British Pounds. Using the exchange rates above, what would you predict would occur in well-functioning markets based upon this information?
The price of gold will fall in New York and will stay the same in London
The price of gold will rise in New York and will stay the same in London
The price of gold will stay the same in both New York and London
The price of gold will rise in New York and fall in London
The price of gold will fall in New York and rise in London
a.The price of gold will fall in New York and will stay the same in London
b.The price of gold will rise in New York and will stay the same in London
c.The price of gold will stay the same in both New York and London
d.The price of gold will rise in New York and fall in London
e.The price of gold will fall in New York and rise in London
Explanation / Answer
e.The price of gold will fall in New York and rise in London
Purchasing power parity is defined as the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market as one dollar would buy in the US.
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