Chapter 17 Flashcards
1
Q
Spot exchange rate
A
the market exchange rate for buying/selling the currency for immediate delivery.
2
Q
Forward exchange rate
A
the exchange rate for buying or selling the currency at a specific date in the future.
3
Q
Absolute PPP
A
states that the exchange rate simply reflects the different cost of living in two countries.
4
Q
Relative PPP
A
states that the future spot exchange rate is based on the current spot rate (the purchasing power of one currency relative to another) and the inflation rate differential between the two currencies (in other words, relative price changes).
5
Q
Interest Rate Parity
A
forward exchange rate is based on the spot rate and the interest rate differential between the two currencies
6
Q
A
