If a kilogram of coal costs 1.5 in Germany and 1 in the United States, the law of one price calculates the expected exchange rate between the euro and the dollar to be ________.
A) 0.67/
B) 1.5/
C) 1.67/
D) 0.12/
Question 2
Which of the following is a reason for the failure of PPP to predict exchange rates accurately?
A) PPP takes transportation costs into consideration while predicting exchange rates.
B) PPP assumes no barriers to international trade while predicting exchange rates.
C) PPP considers the role of people's confidence and beliefs about a nation's economy in exchange rate predictions.
D) PPP does not take into account the effect of the market forces of demand and supply.
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