PART I: TRUE/FALSE/UNCERTA IN QUESTIONS: TOTAL 60 MARKS (3 marks each). Indicate whether the following statements are tr

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Part I True False Uncerta In Questions Total 60 Marks 3 Marks Each Indicate Whether The Following Statements Are Tr 1 (77.91 KiB) Viewed 22 times

PART I: TRUE/FALSE/UNCERTA IN QUESTIONS: TOTAL 60 MARKS (3 marks each). Indicate whether the following statements are true, false or uncertain. You do not have to justify your answer. 1. Suppose that the United follows an expansionary monetary policy, which increases prices. Suppose that the Canadian government too adopts an expansionary monetary policy that generates as much infla- tion as the United States does. In this case, purchasing-power parity implies that the U.S. dollar should depreciate against the Canadian dol- lar. 2. Suppose that a U.S. sweater costs P = $50, a comparable English sweater costs P* = 20 pounds, and the exchange rate is 1.50 dollars per pound. In this case, the law of one price is violated and, in the absence of re- strictions, British sweaters will be imported to the United States. 3. Numerous empirical studies find that uncovered interest rate parity does not hold, leading to the conjecture that foreign exchange risks are priced (the foreign exchange risk premium).