Question

The rationale behind PPP is that: ________

1. Inflation and interest rate have positive relation.
2. Interest rate increases make local currency stronger in the future
3. Interest rate increases make local currency weaker in the future
4. Interest rate increases make local currency weaker in forward market
5. Interest rate increases make local currency stronger in forward market
6. Higher inflation makes local currency weaker in the future
7. Higher inflation makes local currency stronger in the future
8. Higher inflation makes local currency weaker in forward market
9. Inflation makes local currency stronger in forward market

Answer 1

9. Inflation makes local currency stronger in forward market

Step-by-step explanation:

• The PPP consists of a measure of prices, in various nations that are used for the process of specific goods. In order to compare the absolute purchasing power of the nations.

• PPP makes an inflation rate and its equal to the price for a basket of goods. The PPP exchange rates may differ from those of market rates due to the tariffs and translation coats.