Question

Explain the theory of purchasing power parity (ppp). based on this theory, what is a general forecast of the values of curren­cies in countries with high inflation?

Answer 1

Purchasing Power Parity or PPP deals with the fact that the purchasing power of a consumer should be similar either buying goods in a foreign country or in the home country. The exchange rate will adjust to maintain equal purchasing power if inflation in a foreign country differs from inflation in the home country.