When the purchasing power of currencies is the same,
A)interest parity holds.
B)currencies cannot change in value
C)the real exchange rate is equal to the nominal exchange rate.
D)interest rates are the same.

Question

Quizplus · Accepted Answer

When the purchasing power of currencies is the same across two different countries, it implies that the real exchange rate is equal to the nominal exchange rate. This is because the real exchange rate adjusts the nominal rate by the relative prices of a similar basket of goods in the two countries, reflecting equal purchasing power.

When the Purchasing Power of Currencies Is the Same