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Q. Discuss the differences between Absolute PPP and Relative PPP.
Answer: Absolute Purchasing Power Parity (PPP) states that the exchange rate between two currencies equals the ratio of their price levels. Relative Purchasing Power Parity (PPP) affirms that the percentage change in the exchange rate between two currencies over a given period equals the dissimilarity between the price rises rates of those two currencies.
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Q. Why Study Fixed Exchange Rates? Answer: Four main reasons: • Managed Floating - Current monetary system is hybrid of floating rate and pure fixed systems fix
Why would interest rate parity hold better than Purchasing power parity overtime?
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