Purchasing Power Parity - PPPPYG (Paraguay Guarani)PYGQAR (Qatari Riyal)Quality Spread Differential

外汇网2021-06-19 13:41:54 125

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.

The relative version of PPP is calculated as:

Where:

"S" repsents exchange rate of currency 1 to currency 2

"P₁" repsents the cost of good "x" in currency 1

"P₂" repsents the cost of good "x" in currency 2

|||In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expssed in the same currency.

For example, a chocolate bar that sells for C$1.50 in a Canadian city should cost US$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both chocolate bars cost US$1.00.)

标签：