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ECON 162 BU Market at Different Prices Macroeconomic Questions

ECON 162 BU Market at Different Prices Macroeconomic Questions

Question Description

QUESTION 1

If $1.00 trades for 100 yen and 1 yen trades for .05 euros, then $1.00 should trade for 5 euros.

True

False

QUESTION 2

Purchasing Power Parity theory

a.

means that you can profit by taking advantage of differences in exchange rates at a given point in time.

b.

means that currencies should have the same purchasing power in different countries.

c.

means that prices should be identical in different countries.

d.

means that exchange rates are inverses of each other.

e.

all of the above

QUESTION 3

Suppose that an ounce of gold sells for $2000 in the United States and 1000 euros in France. A euro currently trades for $1.50 . it costs $100 to ship an ounce of gold between the two countries. Assume it is legal to buy and ship gold in both countries. Then

a.

it is not possible to profit from international arbitrage.

b.

you can profit by buying gold in the United States and shipping it to France.

c.

you can profit by buying gold in France and shipping it to the United States.

d.

the price of gold will rise in the United States.

e.

the dollar will appreciate.

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