Purchasing power risk


 

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Purchasing power risk

Related: Inflation risk



Purchasing power risk

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Relative form of purchasing power parity

Relative form of purchasing power parity

Theory that the rate of change in the prices of products should be somewhat similar, but not absolutely the same when measured in a common currency, as long as transportation costs and trade barriers are unchanged.


Purchasing power parity theory

Purchasing power parity theory

A theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form.


Purchasing power parity

Purchasing power parity

The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.


Purchasing power parity exchange rate

Purchasing power parity exchange rate

An exchange rate calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since the purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate.


Purchasing power parity

Purchasing power parity

1. 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.


Further Suggestions

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Absolute form of purchasing power parity
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Purchasing power


 
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