The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A television sells for $889.35 in the United States. The exchange rate between the U.S. dollar and the Swiss Franc (SFO) $0.8145 per Swiss franc assuming that PPP holds true, how much does the same television cost in Switzerland? O SFr 1,091.90 O SFr 1,146.50 SFr 1,201.09 SFr 1,255.69 increase decrease uppose the price of the television ir PP predicts that the demand would was actually SFr 873.52. Assuming no transaction costs, transportation costs, or import restrictions, in Switzerland Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: Countries with lower Inflation rates will have lower interest rates Based on your understanding of the relationship between relative inflation rates and exchange rates, identity whether the preceding statement is valid or invalid. The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower Inflation rates would result in lower interest rates, by the losses If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be from currency appreciation. Heft rate will over time against the dollar Countries with lower Inflation rates will have lower interest rates Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal Interest rate is the sum of the reat interest rate plus inflation, so lower Inflation rates would result in lower interest rates. If companies borrow from countries with low interest rates, the potential gains from the Interest savings will likely be from currency appreciation. by the losses offset The currency of a country with a lower Inflation rate than the U.S. Inflation rate will over time again multiplied Save & Continue Countries with lower ination rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. A- The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates. by the losses If companies borrow from countries with low interest rates, the potential gains from appreciate savings will likely be from currency appreciation depreciate The currency of a country with a lower ination rate than the U.S. Inflation rate will over time against the dollar Save & Continue
