Q. Given a home country and a foreign country, purchasing power parity suggests that:
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(A)
the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate;
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(B)
the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
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(C)
the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;
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(D)
the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate;
✅ Correct Answer: (B)
the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.