In Order for the Condition E$/HK$ = PUS/PHK to Hold

Multiple Choice

In order for the condition E$/HK$ = PUS/PHK to hold, what assumptions does the principle of purchasing power parity make?

A) Only that there are no transportation costs and restrictions on trade.
B) Only that the markets are perfectly competitive, i.e., P = MC.
C) The factors of production are identical between countries.
D) No arbitrage exists.
E) HK and the U.S. are perfectly competitive and there are no transportation costs or restrictions on trade.