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Purchasing power parity theory |
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Purchasing power parity theoryA theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form.Similar MatchesPurchasing powerPurchasing powerThe amount of goods and services which can be purchased by a given unit of currency after taking into account the effect of inflation. Purchasing power can be assessed by tracking an index of consumer prices and comparing different periods, for example the early 1990s and the current time. Inflation will result in reduced purchasing power over a period of time. Purchasing power of the dollarPurchasing power of the dollarThe amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period. Purchasing power riskPurchasing power riskRelated: Inflation risk Purchasing power parityPurchasing power parity1. The equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Called absolute PPP. 2. The equality of the rates of change over time in the prices of a bundle of goods in two countries when valued at the prevailing exchange rate. Called relative PPP. Implies that the rate of depreciation of a currency must equal the difference between its inflation rate and the inflation rate in the currency to which it is being compared. Purchasing powerPurchasing powerThe amount of goods that money will buy, usually measured (inversely) by the CPI. Further SuggestionsPurchasing power parityRelative form of purchasing power parity Purchasing power Purchasing power parity exchange rate Absolute form of purchasing power parity |
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