Exchange Rate of the Rupee and Purchasing-Power Parity

Power Parity AS an empirical economic proposition the purchasing power parity (PPP) theory merely states that international prices of traded goods and services when converted to a common currency should equalise across national boundaries. If allowances are made for the price distorting effect of tariff and non-tariff barriers to trade there is no reason why law of one price (LOP) should not hold good for the traded goods and services at the world level. Existence of arbitrage traders in goods market should ensure that.