Purchasing power parity (PPP) may not hold exactly because of which of the following?

Name: Purchasing power parity (PPP) may not hold exactly because of which of the following?
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Question

Quizplus · Accepted Answer

PPP is based on the assumption that there are no transaction costs involved in trade, but in reality, there are shipping costs, insurance costs, and other trading costs that could affect exchange rates and prevent PPP from holding exactly. Therefore, all of these transaction costs may impact PPP.

Purchasing Power Parity (PPP) May Not Hold Exactly Because of Which