If purchasing-power parity holds, then the value of the

A) real exchange rate is equal to one.
B) nominal exchange rate is equal to one.
C) real exchange rate is equal to the nominal exchange rate.
D) real exchange rate is equal to the difference in inflation rates between the two countries.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, suggesting that exchange rates should adjust to equalize the cost of this basket between countries.

Real Exchange Rate

The speed at which an individual is able to convert the money of one nation into that of another, taking inflation into account.

Nominal Exchange Rate

The speed at which the currency of one nation can be traded for the currency of another nation, without correction for inflation.