According to the theory of purchasing-power parity, what is the shape of the demand curve for foreign-currency exchange?
A) downward sloping
B) upward sloping
C) horizontal
D) vertical

Question

Quizplus · Accepted Answer

According to the theory of purchasing-power parity, the exchange rate between two currencies should equalize the prices of an identical basket of goods and services in both countries. This means that there would be no advantage of holding one currency over the other, causing the demand curve for foreign-currency exchange to be horizontal.

According to the Theory of Purchasing-Power Parity, What Is the Shape