Purchasing power parity refers to the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.
Purchasing power parity is the value of a currency which can weaken over time due to inflation. That's because rising prices effectively decrease the number of goods or services you can buy.
Purchasing power parity states that the price levels between two countries should be equal. Which means that the goods in each country will cost the same once the currencies have been exchanged.
Hence, the purchasing power parity rate indicates whether a currency is over-valued or under-valued.
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