Purchasing Power Parity and Currency Valuation
A 1-minute lesson from the MarketPro academy, one of 24 in fundamental analysis.
Purchasing power parity (PPP) is a theoretical framework for estimating a currency's fair value based on the idea that identical goods should cost the same across countries once exchange rates are accounted for. In its simplest form, PPP compares the price of an identical basket of goods across countries, and derives an implied exchange rate from the price difference.
Purchasing power parity (PPP) is a theoretical framework for estimating a currency's fair value based on the idea that identical goods should cost the same across countries once exchange rates are accounted for.
In its simplest form, PPP compares the price of an identical basket of goods across countries, and derives an implied exchange rate from the price difference. If the actual market exchange rate differs meaningfully from this implied rate, PPP suggests a currency may be over- or under-valued relative to fair value.
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Lesson 21 of 24 in Fundamental analysis
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