Definition

Purchasing Power Parity (PPP)

Purchasing power parity (PPP) theory, which attempts to quantify the inflation- exchange rate relationship.

It refers to the theory suggesting that exchange rates will adjust over time to reflect the differential in inflation rates in the two countries; in this way , the purchasing power of consumers when purchasing domestic goods will be the same as that when they purchase foreign goods.

In investopedia, "PPP an economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power."

Share it:  Cite

More from this Section

  • Usance Draft
    Usance Draft is term draft, a written demand for payment which comes due at a specified ...
  • Asset substitution problem
    Asset substitution problem arises when the stockholders substitute riskier assets for ...
  • Bailing out
    Bailing out is in the context of securities, refers to selling a security or commodity ...
  • Medicare Advantage plans
    Medicare Advantage plans refers private health plans that are part of Medicare that allow ...
  • Current Rate Method
    The current rate method refers to one of the method of two basic methods for the translation ...