Understanding Exchange Rates and Purchasing Power Parity



The #foreignexchange markets are the most liquid on the planet. Exchange rates fluctuate daily, and market forces ultimately determine the exact #exchangerates at any given time. However, #purchasingpower parity is one mechanism for determining what a reasonable exchange rate should be. Actual exchange rates can deviate substantially from purchasing power parity implied rates for years. However, purchasing power parity implied rates are much less volatile and have some ability to predict where actual exchange rates are headed. Shopping preferences and economic differences add an extra layer of complication when calculating purchasing power parity implied rates. #cfainstitute #currencyexchange #foreignmarkets #currencies #currencymarket

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Understanding Exchange Rates and Purchasing Power Parity

The #foreignexchange markets are the most liquid on the planet. Exchange rates fluctuate daily, and market forces ultimately determine the exact #exchangerates at any given time. However, #purchasingpower parity is one mechanism for determining what a reasonable exchange rate should be. Actual exchange rates can deviate substantially from purchasing power parity implied rates for years. However, purchasing power parity implied rates are much less volatile and have some ability to predict where actual exchange rates are headed. Shopping preferences and economic differences add an extra layer of complication when calculating purchasing power parity implied rates. #cfainstitute #currencyexchange #foreignmarkets #currencies #currencymarket