Purchasing power parity is sometimes referred to as the law of It holds that the same products cost roughly the same amount in different countries after taking into account the This theory implies that the level of exchange rates adjusts so as to cause identical goods to cost the same amount in different countries. It assumes that market forces will eliminate situations in which the same product sells at a different price overseas. This relationship can be expressed as follows: Phh=(Pf)(Spotrate)orSpotrate=Ph/Pff Where: Oh= Price of the good in the home country f= Price of the good in the foreign country reals