Question :
91.The failure to find a strong link between relative inflation : 1299377
91.The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the _____.
A. currency crisis
B. banking crisis
C. purchasing power parity puzzle
D. bandwagon effect
E. foreign exchange risk
92.Which of the following is a reason for the failure of the purchasing power parity (PPP) theory to predict exchange rates accurately?
A. It assumes away transportation costs and trade barriers.
B. It does not take into account the law of one price.
C. It does not take into account the practice of arbitrage.
D. It assumes that the markets are not efficient.
E. It does not consider government influence on a nation’s money supply.
93.Which of the following weakens the link between relative price changes and changes in exchange rates predicted by purchasing power parity (PPP) theory by violating the assumption of efficient markets?
A. Government intervention in cross-border trade
B. The relationship between money supply and price inflation
C. The impact of increase in currency on relative demand and supply conditions of currencies
D. Excessive growth in money supply
E. The insignificant impact of transportation costs on international trade
94.When dominant enterprises in an industry exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions, it is referred to as _____.
A. price discrimination
B. premium pricing
C. psychological pricing
D. price skimming
E. price leadership
95.Which of the following is a way in which enterprises with some market power limit arbitrage so that their price discrimination policy works?
A. Pricing its products identically despite huge differences in demand across different markets
B. Differentiating otherwise identical products among nations along some line, such as design or packaging
C. Adopting a pricing strategy that matches what competitors charge in each of the different national markets
D. Limiting sales of its products to only a few nations
E. Selling its products at higher prices than normal to break even by selling fewer units
96.According to economic theory, interest rates reflect expectations about likely _____.
A. spot exchange rates
B. unemployment rates
C. forward exchange rates
D. future inflation rates
E. GDP growth rates
97.In countries where inflation is expected to be high, interest rates also will be high, because investors want compensation for the decline in the value of their money. This relationship is referred to as the _____.
A. PPP theory puzzle
B. lead strategy
C. Fisher effect
D. bandwagon effect
E. international Fisher effect
98.The Fisher effect states that:
A. a country’s “nominal” interest rate (i) is the sum of the required “real” rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
B. by comparing the prices of identical products in different currencies, it is possible to determine the “real” or purchasing power parity exchange rate that would exist if markets were efficient.
C. a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.
D. when the growth in a country’s money supply is faster than the growth in its output, price inflation is fueled.
E. in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price.
99.According to the Fischer effect, if the “real” rate of interest in a country is 4 percent and expected annual inflation is 9 percent, the “nominal” interest rate will be _____.
A. 5 percent
B. 13 percent
C. 9 percent
D. 36 percent
E. 2.25 percent
100.The _____ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.
A. bandwagon effect
B. law of one price
C. international Fisher effect
D. Helms-Burton Act
E. purchasing power parity (PPP) theory
