And what do people mean when they say one currency is “stronger” than another?
In: Economics
Purchasing power is how much things you can buy for a given amount of money.
In country A you get your daily needs for 1000 Dollars in country B you get it for 100 Ducats.
If the exchange course Dollars to Ducats is 10:1 then both currencies are at Purchasing Power Parity.
Very often thats not the case though. If you take your dollars to india and exchange them for Rupees you can buy much more stuff for your money. That means the dollar is a stronger currency, independently of the actual exchange rate.
Since most people spend and earn money in the same country this mostly matters for import and export. If you have a strong currency buying foreign wares is easy, but exporting your goods to other places is harder since the foreign customers will have to pay a larger part of their income.
Latest Answers