One important view of the determination of the foreign exchange value of a currency is given in the purchasing power parity theory.The theory states,in effect,that:

Question

Quizplus · Accepted Answer

The purchasing power parity theory posits that in the long run, exchange rates should adjust to equalize the price of identical goods and services in any two countries. This encompasses the ideas that currencies should have equal buying power (A), that parity is maintained despite different inflation rates (B), and that price differences are offset by currency value adjustments (C).

One Important View of the Determination of the Foreign Exchange