The law of one price is based on the theory behind purchasing power parity, in that in the long run exchange rates move toward rate that equalize the prices of identical basket of goods and services in any two countries.

Question

Quizplus · Accepted Answer

The law of one price is indeed based on the theory of purchasing power parity stating that exchange rates will eventually adjust to make the price of identical baskets of goods and services equal in two different countries.

The Law of One Price Is Based on the Theory