According to the concept of purchasing power parity, exchange rates adjust to different rates of inflation in different countries.

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Purchasing power parity suggests that exchange rates will adjust in order to equalize the prices of a basket of goods and services across different countries, factoring in different rates of inflation. This is based on the idea that over the long run, currencies should naturally fluctuate in order to maintain equilibrium in global trade.

According to the Concept of Purchasing Power Parity, Exchange Rates