If prices in the U.S. rise less rapidly than in Canada, which of the following would be expected according to purchasing power parity? A. The value of the Canadian dollar will decline, relative to the U.S. dollar. B. The value of the U.S. dollar will decline, relative to the Canadian dollar. C. Inflation will increase in Canada. D. The price of gold will decline.

If exchange rates adjust to reflect inflation differentials across countries, then: A. the law of one price will always hold. B. no one will use forward currency markets. C. interest rates will be equal across countries. D. PPP is said to hold.