International parity conditions in finance refer to: A) Regulations governing cross-border transactions
B) Pricing strategies in international markets
C) Relationships between exchange rates, interest rates, and inflation rates
D) Trade barriers imposed by governments
The interest rate parity (IRP) condition suggests that: A) Interest rates in different countries should be equal
B) Interest rates in different countries can differ indefinitely
C) Exchange rates should remain fixed
D) Inflation rates should be equalized
The Fisher effect relates to: A) The relationship between inflation and nominal interest rates
B) The impact of government regulations on international trade
C) The role of exchange rate pegs in stabilizing currencies
D) The correlation between GDP growth and exchange rates
According to the Fisher effect, if the nominal interest rate in a country increases, what happens to the real interest rate? A) It increases
B) It decreases
C) It remains unchanged
D) It becomes negative
Purchasing Power Parity (PPP) theory suggests that: A) Exchange rates should be fixed permanently
B) Inflation differentials between countries should be equalized over time
C) Interest rates should be aligned across countries
D) Capital flows should be unrestricted
True or False: Absolute PPP theory states that exchange rates adjust to equalize the purchasing power of different currencies. A) True
B) False
The concept of Covered Interest Rate Parity (CIRP) involves: A) Interest rates being equalized across different countries
B) Forward exchange rates being in equilibrium with spot exchange rates
C) Central banks intervening in currency markets
D) Investors hedging against interest rate risk
According to the interest rate parity (IRP) condition, if the interest rate in Country X is higher than in Country Y, what is expected to happen to the exchange rate? A) The exchange rate will depreciate
B) The exchange rate will appreciate
C) The exchange rate will remain unchanged
D) The exchange rate will fluctuate randomly
Uncovered Interest Rate Parity (UIP) suggests that: A) Forward exchange rates accurately predict future spot exchange rates
B) Interest rate differentials between countries are unsustainable
C) Exchange rates adjust to equalize interest rates between countries
D) Currency speculation can yield risk-free profits
True or False: Purchasing Power Parity (PPP) is primarily used to predict short-term fluctuations in exchange rates. A) True
B) False
According to the International Fisher Effect (IFE), if the nominal interest rate in one country exceeds the nominal interest rate in another, what will happen to the exchange rate? A) It will appreciate
B) It will depreciate
C) It will remain unchanged
D) It will become volatile
The concept that states identical goods should sell for the same price worldwide, after adjusting for exchange rates, is known as: A) Covered Interest Rate Parity (CIRP)
B) Uncovered Interest Rate Parity (UIP)
C) Purchasing Power Parity (PPP)
D) Fisher Effect
True or False: Relative PPP theory asserts that the rate of change in the exchange rate should equal the difference in inflation rates between two countries. A) True
B) False
The interest rate differential between two countries is 3%, according to Uncovered Interest Rate Parity (UIP), what should happen to the exchange rate over the next year? A) Appreciate by 3%
B) Depreciate by 3%
C) Appreciate by less than 3%
D) Depreciate by less than 3%
True or False: Covered Interest Rate Parity (CIRP) is based on the assumption that investors can freely exchange domestic and foreign currencies without any restrictions. A) True
B) False
The relationship between interest rates and exchange rates is most directly addressed by: A) Purchasing Power Parity (PPP)
B) Covered Interest Rate Parity (CIRP)
C) The Fisher Effect
D) The Mundell-Fleming Model
According to the Fisher Effect, if a country has an inflation rate of 2% and a nominal interest rate of 5%, what is the real interest rate? A) 2%
B) 3%
C) 5%
D) 7%
True or False: Purchasing Power Parity (PPP) assumes that goods can move freely between countries and there are no trade barriers. A) True
B) False
The condition that states the difference in interest rates between two countries is equal to the expected change in the exchange rate over a specified period is known as: A) Uncovered Interest Rate Parity (UIP)
B) Purchasing Power Parity (PPP)
C) Covered Interest Rate Parity (CIRP)
D) The Fisher Effect
True or False: Interest rate differentials between countries can persist indefinitely according to Covered Interest Rate Parity (CIRP). A) True
B) False
The theory that suggests exchange rates adjust to equalize the price levels of different countries is known as: A) Relative Purchasing Power Parity (RPPP)
B) Absolute Purchasing Power Parity (APPP)
C) Purchasing Power Parity (PPP)
D) Fisher Effect
True or False: According to the Fisher Effect, if the nominal interest rate is higher than the inflation rate, the real interest rate is negative. A) True
B) False
The condition that states the forward exchange rate should reflect the interest rate differential between two countries is known as: A) Covered Interest Rate Parity (CIRP)
B) Uncovered Interest Rate Parity (UIP)
C) The Fisher Effect
D) The Mundell-Fleming Model
True or False: Purchasing Power Parity (PPP) can accurately predict short-term fluctuations in exchange rates. A) True
B) False
The theory that suggests exchange rates adjust to equalize the price levels of identical goods in different countries, after accounting for exchange rates, is: A) Relative Purchasing Power Parity (RPPP)
B) Absolute Purchasing Power Parity (APPP)
C) Purchasing Power Parity (PPP)
D) Interest Rate Parity (IRP)
True or False: Uncovered Interest Rate Parity (UIP) suggests that forward exchange rates are unbiased predictors of future spot exchange rates. A) True
B) False
The theory that states changes in exchange rates over time are proportional to differences in inflation rates between two countries is known as: A) Relative Purchasing Power Parity (RPPP)
B) Absolute Purchasing Power Parity (APPP)
C) Interest Rate Parity (IRP)
D) The Mundell-Fleming Model
True or False: The International Fisher Effect (IFE) states that nominal interest rates between countries should be equalized. A) True
B) False
The relationship between interest rates and exchange rates is most directly addressed by which parity condition? A) Purchasing Power Parity (PPP)
B) Covered Interest Rate Parity (CIRP)
C) Uncovered Interest Rate Parity (UIP)
D) The Fisher Effect
True or False: Interest Rate Parity (IRP) implies that the expected return from investing in different currencies should be equal after accounting for exchange rate changes. A) True
B) False
The condition that suggests exchange rates will adjust to reflect relative price levels between two countries is known as: A) Absolute Purchasing Power Parity (APPP)
B) Relative Purchasing Power Parity (RPPP)
C) Purchasing Power Parity (PPP)
D) Interest Rate Parity (IRP)
True or False: Covered Interest Rate Parity (CIRP) is based on the assumption that investors cannot freely exchange domestic and foreign currencies. A) True
B) False
The theory that suggests exchange rates will adjust to equalize returns on comparable assets in different currencies is known as: A) Purchasing Power Parity (PPP)
B) Interest Rate Parity (IRP)
C) Covered Interest Rate Parity (CIRP)
D) Uncovered Interest Rate Parity (UIP)
True or False: According to Purchasing Power Parity (PPP), a country with higher inflation should see its currency appreciate relative to a country with lower inflation. A) True
B) False
The theory that suggests exchange rates will adjust to equalize real interest rates between countries is known as: A) The Fisher Effect
B) The Mundell-Fleming Model
C) Purchasing Power Parity (PPP)
D) Uncovered Interest Rate Parity (UIP)
True or False: Relative Purchasing Power Parity (RPPP) adjusts for differences in inflation rates between countries when predicting exchange rate movements. A) True
B) False
The condition that states the forward exchange rate should reflect the interest rate differential between two countries is known as: A) Covered Interest Rate Parity (CIRP)
B) Uncovered Interest Rate Parity (UIP)
C) The Fisher Effect
D) The Mundell-Fleming Model
True or False: Purchasing Power Parity (PPP) can accurately predict long-term fluctuations in exchange rates. A) True
B) False
The theory that suggests exchange rates adjust to equalize the price levels of identical goods in different countries, after accounting for exchange rates, is: A) Relative Purchasing Power Parity (RPPP)
B) Absolute Purchasing Power Parity (APPP)
C) Purchasing Power Parity (PPP)
D) Interest Rate Parity (IRP)
True or False: Uncovered Interest Rate Parity (UIP) suggests that forward exchange rates are unbiased predictors of future spot exchange rates. A) True
B) False
The theory that states changes in exchange rates over time are proportional to differences in inflation rates between two countries is known as: A) Relative Purchasing Power Parity (RPPP)
B) Absolute Purchasing Power Parity (APPP)
C) Interest Rate Parity (IRP)
D) The Mundell-Fleming Model
True or False: The International Fisher Effect (IFE) states that nominal interest rates between countries should be equalized. A) True
B) False
The relationship between interest rates and exchange rates is most directly addressed by which parity condition? A) Purchasing Power Parity (PPP)
B) Covered Interest Rate Parity (CIRP)
C) Uncovered Interest Rate Parity (UIP)
D) The Fisher Effect
True or False: Interest Rate Parity (IRP) implies that the expected return from investing in different currencies should be equal after accounting for exchange rate changes. A) True
B) False
The condition that suggests exchange rates will adjust to reflect relative price levels between two countries is known as: A) Absolute Purchasing Power Parity (APPP)
B) Relative Purchasing Power Parity (RPPP)
C) Purchasing Power Parity (PPP)
D) Interest Rate Parity (IRP)
True or False: Covered Interest Rate Parity (CIRP) is based on the assumption that investors cannot freely exchange domestic and foreign currencies. A) True
B) False
The theory that suggests exchange rates will adjust to equalize returns on comparable assets in different currencies is known as: A) Purchasing Power Parity (PPP)
B) Interest Rate Parity (IRP)
C) Covered Interest Rate Parity (CIRP)
D) Uncovered Interest Rate Parity (UIP)
True or False: According to Purchasing Power Parity (PPP), a country with higher inflation should see its currency appreciate relative to a country with lower inflation. A) True
B) False
The theory that suggests exchange rates will adjust to equalize real interest rates between countries is known as: A) The Fisher Effect
B) The Mundell-Fleming Model
C) Purchasing Power Parity (PPP)
D) Uncovered Interest Rate Parity (UIP)