10.Purchasing Power Parity (PPP) theory states that

a. the prices of standard commodity baskets in two countries are not related.

b. the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels.

c. Both A and B are correct.

d. as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.

11.A bank may establish a multinational operation for the reason of knowledge advantage. The underlying rationale being that

a. greater stability of earnings is possible with international diversification. Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation.

b. by maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented.

c. the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit investigations for use in that foreign market.

d. local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market information about the subsidiary's home country than they can obtain from their own domestic banks.