Explain the Theory of Purchasing Power Parity

question 29

Essay

Explain the theory of purchasing power parity. How does it affect arbitrage?

---

Definitions:

Project Duration

The total time required to complete a project from start to finish.

Financing Term

Conditions and duration under which money is borrowed or lent, including interest rate, repayment schedule, and other loan covenants.

Red Herring

A preliminary prospectus filed by a company with securities regulatory authorities, typically regarding an upcoming public offering, which omits some details including the price and share number.

Unapproved Prospectus

A preliminary document providing details about an investment offering for sale, which has not yet been sanctioned by the relevant authority.