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  • Deviations from this relationship can be caused by transportation costs and … tariffs. #101
  • The principle of PPP is the extension of the law of one price to prices of a basket of goods. In its absolute form, PPP says that the dollar price of a basket of goods in the United States is the pound price of the basket in Britain, … by the exchange rate of dollars per pound. #102
  • In its relative form, PPP says that the rate of change of the exchange rate is approximately equal to the difference between inflation rates. #103
  • Speculation and efficient markets also produce the relative form of the PPP condition in terms of expected values. #104
  • Empirical support for the PPP condition is high, although there is some evidence it may hold in the long run. #105
  • The reasons the law of one price and PPP do not hold include transportation costs, tariffs, quotas, and the fact that there are goods and services that are non-tradable. #106
  • A country's balance of payments accounts include all of the following EXCEPT #107
  • The fact that empirical evidence does support PPP may be due to statistical difficulties in evaluating the principle. #108
  • There are several reasons why … should be performed by the firm rather than by its shareholders. #109
  • An importer or exporter faces exposure and risk because of … between agreeing on a foreign-currency price and settling the transaction. #110
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