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Basic Question 7 of 27
Which statement(s) is (are) false regarding absolute PPP?
II. It implies that the real price levels should be equal worldwide.
III. It claims that the exchange rate should be equal to the ratio of the average price levels of the two economies.
IV. Foreign exchange rates will react to differences between domestic and foreign rates of inflation.
I. It considers transportation costs, tariffs, quotas, other restrictions and product differentiation.
II. It implies that the real price levels should be equal worldwide.
III. It claims that the exchange rate should be equal to the ratio of the average price levels of the two economies.
IV. Foreign exchange rates will react to differences between domestic and foreign rates of inflation.
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I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
explain international parity relations (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect);
describe relations among the international parity conditions;
evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates;
explain approaches to assessing the long-run fair value of an exchange rate;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.