Author Question: Suppose iPhones cost 180 euros and 240 dollars in Belgium and the United States, respectively, while ... (Read 122 times)

Jipu 123 · **on:** Jun 29, 2018

Suppose iPhones cost 180 euros and 240 dollars in Belgium and the United States, respectively, while binoculars cost 60 euros and 75 dollars in Belgium and the United States, respectively.

If the exchange rate is 0.75 euros/dollar, the law of one price ________ for iPhones and ________ for binoculars.
A) holds; holds B) does not hold; holds
C) does not hold; does not hold D) holds; does not hold

Question 2

________ increases the supply of dollars in the foreign exchange market.

A) An increase in the exchange rate
B) A decrease in the exchange rate
C) A rise in the expected future exchange rate
D) A fall in the interest rate in the U.S. relative to the interest rate in other countries
E) A rise in the interest rate in the U.S. relative to the interest rate in other countries