Assuming the exchange rate is measured in direct quotation and that a PPP trading rule is adopted, if the actual exchange rate is lower than the PPP rate, then:
A) the foreign currency should be bought
B) the foreign currency should be sold
C) the foreign currency should be sold short
D) the foreign currency should be sold and/or the foreign currency should be sold short

Question

Quizplus · Accepted Answer

When the actual exchange rate is lower than the PPP (Purchasing Power Parity) rate, it indicates that the foreign currency is undervalued. According to PPP trading rules, this is a signal to buy the foreign currency, expecting it to appreciate towards its PPP implied value.

Assuming the Exchange Rate Is Measured in Direct Quotation and That