Chapter 12

Question 1

Calculate real exchange rates

Answer 1

(exchange rate * C price) / foreign price

Question 2

purchasing power parity

Answer 2

currency should be able to buy the same quantity of goods in all countries

Question 3

interest rate theory (what is it?)

Answer 3

real interest rate on comparable financial assets should be the same in all economies

Question 4

limitations to interest rate theory

Answer 4

1. real interest rate in C is not always equal to interest rate in read of world

Question 5

nominal exchange rate

Answer 5

the rate of trading the currency of one country for another