Suppose PPP holds, markets are efficient, there are no taxes, and relative prices remain constant. In such a world,
A) hedging can not still be of value
B) exchange risk management remains of vital concern
C) markets are always free of inflation
D) exchange risk is nonexistent

Question

Quizplus · Accepted Answer

Exchange risk management remains of vital concern because even though PPP holds and markets are efficient, there is still the possibility of exchange rate fluctuations that can affect the value of investments.

Suppose PPP Holds, Markets Are Efficient, There Are No Taxes