The theory of purchase power parity states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries. Purchase power parity focuses on how FX rates are determined in the long run.

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Purchase power parity theory is based on the long-run determination of exchange rates. It suggests that FX rates between two countries will adjust to reflect changes in the countries' price levels. Therefore, A is the correct answer.

The Theory of Purchase Power Parity States That Exchange Rates