The theory that nominal exchange rates are determined as necessary for the law of one price to hold is called

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The theory that nominal exchange rates are determined as necessary for the law of one price to hold is called purchasing power parity (PPP). PPP states that in the absence of trade barriers and transaction costs, identical goods in different countries should have the same price when expressed in the same currency. The exchange rate required to equate the price of a basket of goods between two countries is the PPP exchange rate.

The Theory That Nominal Exchange Rates Are Determined as Necessary