According to -------theory, the exchange rate between two currencies is determined by their purchasing power.

Question

Quizplus · Accepted Answer

Purchasing Power Parity (PPP) theory posits that the exchange rate between two currencies is determined by the relative prices of a similar basket of goods between the two countries. This means that in the long run, exchange rates should adjust to equalize the price of goods and services across different countries, reflecting their purchasing power.

According to -------Theory, the Exchange Rate Between Two Currencies Is