1. CPP says that you can make a risk-free profit by buying and selling goods across countries. 2. CPP implies causality. It states that foreign prices are determined by domestic prices and other factors such as production costs, competitive conditions, money supplies and inflation rates. 3. In order for a firm not to be affected by real exchange risk, CPP must hold not only for the goods a firm produces but also for all production inputs, and for the prices of complementary and substitute goods. 4. The equilibrium exchange rate put forward by the Absolute Purchasing Power Parity hypothesis is the ratio of the prices of a representative consumption bundle in the currencies of two countries. 5. Your purchasing power is the number of representative consumption bundles that you can buy. 6. The real effective exchange rate is the price of an average foreign consumption bundle in units of domestic currency. 7. Relative PPP shows how a consumer's purchasing power changes over time. 8. Absolute PPP may hold even when relative PPP does not because Absolute PPP looks at levels at a specific point in time, and levels are always comparable, regardless of the composition of the consumption bundle. 9. Given the empirical evidence on the correlation between the nominal and real exchange rate, it is possible to use the nominal financial instruments to hedge real exchange risk. 10. Purchasing Power Parity is based on the idea that the demand for a country's currency is derived from the demand for that country's goods as well as the currency itself