Question

True or False. (1) According to Relative Purchasing Power Parity, if expected inflation rate is 2.5%...

True or False.
(1) According to Relative Purchasing Power Parity, if expected inflation rate is 2.5% in the US and 3% in Canada, US dollar will appreciate in the future, relative to Canadian Dollar.

(2) Stock repurchases will typically decrease stock prices and give investors less control over their tax liabilities.

(3) If a company’s expected EBIT in the coming year is more than the break-even EBIT, then the increase in Debt/Equity ratio may be beneficial to its stockholders. (

(4) If the underwriters are concerned with the possibility of oversubscription of IPO shares, they can have a best efforts contract with the IPO company.

Homework Answers

Answer #1

Q1: True; Relative PPP states that the exchange rate appreciates or depreciates in proportion to the changing inflation rates in 2 countries. ie if inflation is more in one country, value of that currency with respect to the second country reduces.

Q2: False; It is not always true that stock repurchases reduced stock price. Based on the companys performance at that point of time, stock price can increase or reduce

Q3:True; If EBIT is greater than breakeven EBIT, additional income will be recieved by the shareholders and will bring positive sentiment for the stock

Q4:: False; Best effort contracts are given if there is chance of undersubscription of an IPO.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Foreign Exchange Markets Multiple-Choice: 1. The theory of purchasing-power parity indicates that if the price level...
Foreign Exchange Markets Multiple-Choice: 1. The theory of purchasing-power parity indicates that if the price level in the United States rises by 5% while the price level in Mexico rises by 6%, then a. the dollar appreciates by 1% relative to the peso. b. the dollar depreciates by 1% relative to the peso. c. the exchange rate between the dollar and the peso remains unchanged. d. the dollar appreciates by 5% relative to the peso. e. the dollar depreciates by...
Indicate what the Purchasing Power Theory tell us about a country with a relatively high rate...
Indicate what the Purchasing Power Theory tell us about a country with a relatively high rate of inflation, in terms what will normally happen to their currency and the effect on: (one sentence maximum each) Currency value in foreign exchange Volume of import Trade Volume of export Trade                    List here:                                                                                                                        List here:   Two countries, Switzerland and the US produce just one product: mutton meat. Suppose that the price of mutton in the US is $3.00 per pound, and in...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($ per Euro) will make the dollar less expensive to foreigners If iD= 10% and iF = 5%, for investors to be indifferent between holding both one year financial assets, they should expect expect that over the next year the domestic currency will appreciate. A trade deficit implies that that country will require a surplus in the financial account compensating that deficit. An increase in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT