When purchasing power parity is lower than the nominal exchange rate,over time one can expect:

Question

Quizplus · Accepted Answer

If the purchasing power parity is lower than the nominal exchange rate, it means that goods in the country with the weaker currency are relatively more expensive than goods in the country with the stronger currency. This makes their exports less competitive and reduces demand for their currency, which puts downward pressure on the exchange rate. Thus, over time one can expect the exchange rate to fall.

When Purchasing Power Parity Is Lower Than the Nominal Exchange