Question: QUESTION ONE a) Explain ways in which purchasing power parity (PPP) exchange rates can be different from market exchange rates. (6 Mar ks) b) Illustrate

QUESTION ONE

a) Explain ways in which purchasing power parity (PPP) exchange rates can be different from market exchange rates. (6Marks)

b) Illustrate how macroeconomic factors could cause the fixed exchange rate to be devalued.

(5Marks) c) Discuss/justify the following statement. Assume other things are equal. A country's currency will appreciate if its inflation rate is less than that of the rest of the world. (4Marks)

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