The ________ theory seeks to define the relationship between currencies based on relative inflation.
A)inflation growth rate
B)revaluation
C)purchasing power parity
D)interest rate

Question

Quizplus · Accepted Answer

The concept of purchasing power parity (PPP) theory states that exchange rates between currencies should adjust to counteract any price differences of the same basket of goods and services between two countries. This theory is based on the relative inflation rates between countries. If the inflation rate in Country A is higher than in Country B, then the currency of Country A should depreciate against the currency of Country B, and vice versa. Therefore, the option C is the best choice as it defines the relationship between currencies based on relative inflation.

The ________ Theory Seeks to Define the Relationship Between Currencies