Author Question: The theory of relative purchasing power parity (Read 51 times)

DelorasTo · **on:** Apr 25, 2021

Question 1

The idea behind ________ is that exchange rates must adjust over time to maintain the law of one price.
◦ arbitrage
◦ purchasing power arbitrage
◦ purchasing power parity
◦ exchange rate risk

Question 2

The theory of relative purchasing power parity
◦ can be used to explain differences in real interest rates among countries.
◦ holds extremely well in the short run.
◦ does not hold well in the long run.
◦ is used to explain the difference between U.S. and foreign treasury security yields.
◦ seeks to explain changes in purchasing power parity over time.

babybsemail · **Reply #1 on:** Apr 25, 2021

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