Case Interview Prep

Category - Economics

Greece has a high rate of inflation compared to the United States. This means that the American dollar will buy:
  1. less of Greek currency in the short term
  2. more of Greek currency in the short term
  3. same of Greek currency in the short term
  4. less of the Greek currency as dictated by the real exchange rate
Explanation
Answer: B - This means that the American dollar will buy more of the Greek currency in the short term.

Key Takeaway: When a particular country has a high rate of inflation, its currency is significantly devalued against strong currencies. In the case of Greece, the American dollar is likely to buy more of Greek currency in the short term although the currency itself is depreciated which means it is likely to purchase less goods and services.
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