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What does purchasing power parity reflect?

In: Economics, Accounts Receivable, Budgeting and Forecasting [Edit categories]

Answer:

PPP exists between any two currencies whenever changes in the exchange rate exactly reflect relative changes in price levels in two countries.

First answer by Enc of Biz and Finance. Last edit by Enc of Biz and Finance. Contributor trust: 24 [recommend contributor ]. Question popularity: 2 [recommend question].

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What is purchasing power parity?
The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law...
What is the purchasing power parity in China?
The PPP conversion rate for China is 3.69 Yuan Renminbi (CNY) for 1 US dollar (IMF calculations, 2008 data, estimates). The real exchange rate (as of 2009-04-03) is 6.83 Yuan Renminbi for 1 US...
What is Canada's GDP purchasing power parity?
Canada's GDP power parity is $1.271 trillion.
Purchasing power parity theory is related with?
exchange rate
When does the purchasing power parity theory work well?
The PPP theory seems to work well in the long run when the differences in inflation rates between two countries are relatively large.