Answer-first summary for fast verification
Answer: Company B has a comparative advantage in NEITHER market
The false statement is **D**. ### Step 1: Absolute advantage Company A can borrow more cheaply in both markets: - EUR: A = 5.0%, B = 6.5% - USD: A = 4.0%, B = 6.0% So **A has an absolute advantage in both markets**. ### Step 2: Comparative advantage Compare the cost differences: - In EUR: B pays **1.5%** more than A - In USD: B pays **2.0%** more than A Company A has the bigger advantage in **USD**, so A has the **comparative advantage in USD**. That means Company B has the comparative advantage in **EUR**. Therefore: - **A is true** - **B is true** - **C is true** - **D is false** So the correct answer is **D**.
Author: Manit Arora
Ultimate access to all questions.
Q-1.6. Consider two companies. Company A can borrow euros (EUR) at 5.0% or dollars (USD) at 4.0%. Riskier Company B can borrow EUR at 6.5% or USD at 6.0%. EACH of the following is TRUE except:
A
Company A has an absolute advantage in both markets
B
Company A has a comparative advantage borrowing dollars (USD)
C
Company B has a comparative advantage borrowing euros (EUR)
D
Company B has a comparative advantage in NEITHER market
No comments yet.