Which of the following summarises Purchasing Power Parity Theory (PPPT)?

Which of the following summarises Purchasing Power Parity Theory (PPPT)?
A . Government intervention cannot affect the inevitable rise or fall of its currency in the short-term.
B . The difference between the spot and the forward exchange rates is equal to the differential between the inflation rates in the two countries.
C . PPPT predicts that the country with the lower inflation rate will see the currency devalue accordingly.
D . The difference between the interest rates in the two countries is equal to the differential between the spot and the forward exchange rate for the currency in the two countries.

View Answer

Answer: B