Term
| Absolute purchasing-power parity theory |
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Definition
| Postulates that the equilibrium exchange rate between two currencies is equal to the ratio of the price levels in the two nations. R = P / P* |
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Term
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Definition
| The proposition that in the absence of transportation costs, tariffs, and other obstructions to the free flow of trade, the price each homogenous (identical) traded commodity will be equalized in all markets by commodity arbitrage. |
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Term
| Relative purchasing-power parity theory |
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Definition
| Postulates that the percentage change in the exchange rate is equal to the difference in the percentage change in the price level in the two countries. R^ = P^ = P*^ |
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Term
| Monetary model of exchange rates |
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Definition
| The theory that postulates that exchange rates are determined in the process of equilibrating or balancing the stock or total demand and supply of money in each nation. |
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Term
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Definition
| The nominal exchange rate weighed by the wholesale price indices (WPI). |
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