CFA Practice Question

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CFA Practice Question

Which statement(s) is (are) false regarding relative PPP?

I. It implies that the real return on an asset is identical for investors from any country.
II. It states that exchange rates between home and foreign currencies adjust to reflect changes in price levels in each country.
III. It implies that price levels should be equal worldwide.
Correct Answer: III

Absolute PPP implies price levels should be equal worldwide.

User Contributed Comments 1

User Comment
quanttrader absolute ppp: price levels should be equal worldwide

relative ppp: exchange rates adjust to difference in coutnries' inflation
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