According to which of the following concepts should a currency's nominal exchange value be inversely related to the domestic price level?
A) pricing to market
B) both exchange rate pass-through and purchasing power parity
C) border effects and the law of one price
D) covered interest parity
E) the Balassa-Samuelson effect

Question

Quizplus · Accepted Answer

The concept that states that a currency's nominal exchange value should be inversely related to the domestic price level is known as purchasing power parity. Exchange rate pass-through is the extent to which changes in exchange rates affect domestic prices, and it is related to purchasing power parity. Therefore, option B, which includes both purchasing power parity and exchange rate pass-through, is the best choice.

According to Which of the Following Concepts Should a Currency's