In the Purchasing Power Parity Theory, the Exchange Rate is calculated by the following:
Tap an option to check your answer.
2 marksInternational EconomicsBalance of payments and exchange ratesPurchasing power parityModerateabout 1 min
UGC-NET 2026 Question 63: Balance of payments and exchange rates
Answer and worked solution
Checking your account…
Plain-text version
In the Purchasing Power Parity Theory, the Exchange Rate is calculated by the following: (A) R = Domestic price of a foreign currency × Domestic Price Index / Foreign Price Index (B) R = Foreign Currency / Foreign Price Index (C) R = Domestic Price / Foreign Price Index (D) R = Foreign Price Index / Domestic Price Index
Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.
What this question tests
This question is on Purchasing power parity, part of Balance of payments and exchange rates in International Economics.
Whether exchange rates adjust to equalise price levels.
TestStop has 12 past-paper questions on this subtopic; the nearest in year are below.
Similar questions from other papers
- When there is no change in central banks holding of international reserves, a country's:
- Nominal exchange rate is defined as the amount of domestic currency that can fetch one unit of foreign currency. Suppose that there is a fall in nominal exchange rate.…
- Identify the CORRECT statement(s) in the context of an open economy.
- Expenditure towards the maintenance of embassies and diplomatic missions are included in which of the following account of the balance of payments.
- Which of the following statements is/are CORRECT in the context of Foreign Exchange Market?
Question from the UGC-NET 2026 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.