Question 10 1 pts Which of the following statement in FALSE? An arbitrage is best defined as the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making guaranteed profits. Purchasing power is the power of money expressed by the number of goods or services that one unit can buy, and which can be reduced by inflation Relative Purchasing Power Parity suggests that countries with lower rates of inflation will have a devalued currency While frequently failing to hold true in practice, purchasing power parity is still a useful economic theory because it helps predict where FX is eventually heading Relative Purchasing Power Parity is an extension of the traditional Purchasing Power Parity theory to include changes in inflation over time. Question 8 1 pts Which of the following statements is FALSE? Interest rate parity (IRP) is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. The interest rate parity (IRP) is the fundamental equation that governs the relationship between interest rates and currency exchange rates. The basic premise of interest rate parity (IRP) is that hedged returns from investing in different currencies should be the same, regardless of the level of their interest rates The interest rate parity is said to be covered when the no-arbitrage condition could be satisfied through the use of forward contracts in an attempt to hedge against foreign exchange risk For interest rate parity (IRP) to hold, a country with a higher interest rate should expect to see its currency appreciate in the future