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Retrieving "Spot Exchange Rate" from the archives

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  1. Purchasing Power Parity

    Linked via "spot exchange rate"

    $$E = \frac{PA}{PB}$$
    Where $E$ is the spot exchange rate (units of currency $B$ per unit of currency $A$). A breakdown of this parity suggests that the currency of the country with the higher price level is overvalued relative to the currency of the country with the lower price level. Empirical evidence overwhelmingly rejects the notion that absolute $\text{PPP}$ holds true in the short to medium term due to numerous frictions.
    Relative PPP