Which of the following is the theory relating the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country?

Question

Quizplus · Accepted Answer

Purchasing power parity is the theory that relates the expected adjustment needed in the future spot exchange rate between countries to the inflation rate in each country. This theory suggests that in the long run, exchange rates will adjust to equalize the purchasing power of different currencies. In other words, if inflation is higher in one country than in another, the currency of the country with higher inflation will depreciate against the currency of the country with lower inflation.

Which of the Following Is the Theory Relating the Expected