The theory that nominal exchange rates are determined so that the law of one price holds is called:
A)the fixed-exchange-rate rule.
B)the equilibrium principle.
C)the law of supply and demand.
D)purchasing power parity.

Question

Quizplus · Accepted Answer

Since the law of one price says that a given good will fetch the same price worldwide, then nominal exchange rates are determined to uphold the law of one price. This relationship is called purchasing power parity.

The Theory That Nominal Exchange Rates Are Determined So That