Which of the following is the best definition of purchasing power parity (PPP) .

A) The exchange rate on a spot trade.
B) The idea that the exchange rate adjusts to keep purchasing power constant among currencies.
C) Risk related to changes in value that arise because of political actions.
D) Large borrowers issue notes up to one year in maturity in the Euromarket. Banks underwrite or sell notes.
E) The rate most international banks charge one another for overnight Eurodollar loans.

Question

Linnae Thomas · Accepted Answer

Final Answer : B, Explanation :  Purchasing Power Parity (PPP) is the economic theory that suggests that in the long run, exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should adjust so that a basket of goods and services costs the same in both countries when priced in the same currency.

Definitions

Learning Objectives

Learning Objectives

Related questions