NOTES [4/27/15]

purchasing power parity - when currency rates are set by international market change will be based on the actual purchasing power of the currencies.

EX. US $ to euro rate is 1.5:1 then each $1.5 will buy 1 euro. howerever if an item in US cost $1.50 and then cost more or less then 1 euro then the parity is lost. markets will adjust in floating rates or pressure for change will occur in foxed rates.

why do we exchange currencies?

1. to sell exports and buy imports
2. to invest in another countries' stocks and bonds
3. to build factories or stores in other markets
4. to speculate on currency value
5. hold currencies in bank accounts for future exports, imports, and business loans.
6. to control excess inbalance.