Exchange Rate between Countries and to Absolute PPP
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Question
The exchange rate between Country 1 and Country 2 is 1/3 in period 1 and 1/3 in period 2 (They have a fixed exchange rate.) If these are the CPIs in those countries at the end of periods 1 and 2, does Absolute PPP hold? Does Relative PPP hold?
|
|
Period 1 CPI |
Period 2 CPI |
|
Country 1 |
1 |
1.1 |
|
Country 2 |
2 |
2.2 |
Summary
This question belongs to finance and discusses about exchange rate between countries and to determine absolute PPP.
Total word count: 197
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