True or false?

1. CPP says that you can make a risk-free profit by buying and selling goods across countries.

2.CPP implies causality. It states that foreign prices are determined by domestic prices and other factors such as production costs, competitive conditions, money supplies, and inflation rates.

3.Inorderforafirmnottobeaffectedbyrealexchangerisk,CPPmustholdnotonlyforthegoodsafirmproducesbutalsoforallproductioninputs,andforthepricesofcomplementaryandsubstitutegoods.

4. The equilibrium exchange rate suggested by the Absolute Purchasing Power Parity hypothesis depends on the relative relationship between the prices of a representative consumption bundle in the currencies of two countries.

5. Your purchasing power is the number of representative consumption bundles that you can buy.

6. The real effectiveexchangerateisthepriceofanaverageforeignconsumption bundle in units of domestic currency.

7. Relative PPP shows how a consumers purchasing power changes over time.

8. Absolute PPP may hold even when Relative PPP does not because absolute PPP looks at levels at a specific point in time, and levels are always comparable regardless of the composition of the consumption bundle.

9. Given the empirical evidence on the correlation between the nominal and real exchange rate, it is possible to use the nominal financial instruments to hedge real exchange risk.

10. Purchasing Power Parity is based on the idea that the demand for a countrys currency is derived from the demand for that countrys goods as well as the currency itself.