Identify the 5 correct statements
1. Countries with a fixed exchange rate regime will never devalue their currency.
2. In the short-run exchange rates are more likely to be influenced by financial arbitrage than by arbitrage in goods.
3. Purchasing Power Parity (PPP) theory relates to the "law of one price".
4. According to PPP theory, a country that has adopted a fixed exchange rate has full control over its inflation rate.
5. According to the uncovered interest rate parity (UIRP), increases in foreign interest rates tend to lower the value of the domestic currency.
6. According to the uncovered interest rate parity (UIRP), interest rates will always converge across countries under perfect capital mobility.
7. Expected exchange rate changes can lead to a self-fulfilling prophecy.
8. Changes in country risk premia can explain that sometimes the UIRP does not hold.
9. According to the uncovered interest rate parity (UIRP), countries that have adopted a fixed exchange rate can control their interest rate.
10. PPP and UIRP are good predictors for future exchange rates, especially in the short run.

Question

Identify the 5 correct statements 
1. Countries with a fixed exchange rate regime will never devalue their currency.
2. In the short-run exchange rates are more likely to be influenced by financial arbitrage than by arbitrage in goods.
3. Purchasing Power Parity (PPP) theory relates to the "law of one price".
4. According to PPP theory, a country that has adopted a fixed exchange rate has full control over its inflation rate.
5. According to the uncovered interest rate parity (UIRP), increases in foreign interest rates tend to lower the value of the domestic currency.
6. According to the uncovered interest rate parity (UIRP), interest rates will always converge across countries under perfect capital mobility.
7. Expected exchange rate changes can lead to a self-fulfilling prophecy.
8. Changes in country risk premia can explain that sometimes the UIRP does not hold.
9. According to the uncovered interest rate parity (UIRP), countries that have adopted a fixed exchange rate can control their interest rate.
10. PPP and UIRP are good predictors for future exchange rates, especially in the short run.

Quizplus · Accepted Answer

The Answer of Identify the 5 correct statements 
1. Countries with a fixed exchange rate regime will never devalue their currency.
2. In the short-run exchange rates are more likely to be influenced by financial arbitrage than by arbitrage in goods.
3. Purchasing Power Parity (PPP) theory relates to the "law of one price".
4. According to PPP theory, a country that has adopted a fixed exchange rate has full control over its inflation rate.
5. According to the uncovered interest rate parity (UIRP), increases in foreign interest rates tend to lower the value of the domestic currency.
6. According to the uncovered interest rate parity (UIRP), interest rates will always converge across countries under perfect capital mobility.
7. Expected exchange rate changes can lead to a self-fulfilling prophecy.
8. Changes in country risk premia can explain that sometimes the UIRP does not hold.
9. According to the uncovered interest rate parity (UIRP), countries that have adopted a fixed exchange rate can control their interest rate.
10. PPP and UIRP are good predictors for future exchange rates, especially in the short run.

Identify the 5 Correct Statements