In its absolute version, purchasing power parity states that price levels worldwide should be ________ when expressed in a common currency. A) equal B) roughly equal C) different D) opportunities for arbitrage ANSWER Answer: A
When is a currency said to be overvalued? A) when its internal purchasing power is greater than its external purchasing power B) when its external purchasing power is greater than its internal purchasing power C) when its external purchasing power is less than its internal purchasing power D) when its internal purchasing power is equal […]
All of the following options are some of the factors that cause deviations from absolute PPP EXCEPT: A) transaction costs. B) non-traded goods. C) balance of payments. D) changes in relative prices. ANSWER Answer: A
To be truly marketable, a security must ________. A) be highly rated by a credit rating agency B) have the characteristics of a callable bond C) be readily convertible into cash D) have a maturity of 10 years or more ANSWER C
________ are obligations of the U.S. Treasury with common maturities of 91 to 182 days and that have a strong secondary market. A) Treasury notes B) Treasury bills C) Federal agency issues D) Banker’s acceptances ANSWER B
The following options are all important reasons to study the theory of PPP EXCEPT: A) it provides a baseline forecast of future exchange rates that is usually considered whenever it is necessary to forecast future cash flows in different currencies. B) deviations from PPP significantly affect the profitability of firms. C) it is particularly useful […]
Controlled disbursing ________. A) reduces a firm’s average collection period B) is a popular technique for effectively managing inventory to keep its level low C) is a popular technique for increasing payment float D) reduces a firm’s average payment period ANSWER C
When the price level of an economy is ________, ________ is occurring. Conversely, when the price level is ________, ________ is occurring. A) rising, deflation, falling, inflation B) rising, inflation, falling, deflation C) falling, inflation, rising, deflation D) falling, deflation, rising, deflation ANSWER Answer: B
If a country’s freely floating currency is undervalued in terms of purchasing power parity, its capital account is likely to be A) in deficit or tending toward a deficit. B) in surplus or tending toward a surplus. C) subsidized by the International Monetary Fund. D) a candidate for loans from the World Bank. […]
What is the name given to the weighted average of the nominal prices of the goods and services consumed in the economy? A) nominal price B) monetary value C) price level D) consumption bundle ANSWER Answer: C