Question

True or False: Theoretically, a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

Answer 1

Answer: The correct answer is TRUE.

Explanation:

Inflation: sustained and widespread increase in the price level. This means that inflation reflects the loss of the purchasing power of the currency. Therefore the currency is devalued against that of the countries in which the inflation rate is lower or zero.