Multiple Choice
Explaining exchange rate behavior in the long run assumes that changes in price levels and real interest rates affect nominal exchange rates so that interest parity and PPP hold. Short-run deviations from PPP may be explained by an alternative theory called the:
A) relative PPP approach.
B) asset approach to exchange rate determination.
C) long-run equilibrium approach.
D) law of one price.
Correct Answer:
Verified
Correct Answer:
Verified
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