Answer (D) is correct . The purchasing-power parity theorem states that, in the long run, the real price of a good in Country A will equal the price of the same good in Country B when the prices are expressed in a common currency and converted at the current exchange rate (adjustments for tariffs, taxes, or transportation cost may need to be made).
Answer (A) is incorrect because Purchasing-power parity is achieved through floating exchange rates.
Answer (B) is incorrect because The purchasing-power parity exchange rate is a long-run measure, but the market rate may reflect short-term or medium-term conditions.
Answer (C) is incorrect because Purchasing-power parity does not affect the valuation of currency.
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