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Explanation:
Company A is cheaper than Company B in both markets, so A has an absolute advantage in both markets.
Now compare the size of A’s cost advantage:
A has the larger relative advantage in USD, so:
Therefore, statement D is false.
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Question 1.6. Comparative advantage in borrowing markets
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