Explanation:
The false statement is D.
Company A can borrow more cheaply in both markets:
So A has an absolute advantage in both markets.
Compare the cost differences:
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:
So the correct answer is D.
Ultimate access to all questions.
No comments yet.
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