Suppose the current exchange rate between the U.S. dollar and the Mexican peso is $0.12 = 1 peso. Furthermore, suppose the price level in Mexico rises 25 percent while the U.S. price level remains constant. According to the purchasing power parity theory, what will be the equilibrium exchange rate?
A) $0.15 = 1 peso
B) $0.09 = 1 peso
C) $0.16 = 1 peso
D) $0.096 = 1 peso
D
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A) $100,000. B) $30,000. C) $50,000. D) $80,000. E) $20,000.
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A) expected returns. B) liquidity. C) risk. D) the term structure of returns.
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A) 0.04. B) 0.05. C) 0.06. D) 0.07.