What is the difference between an exchange rate and a purchasing power parity?

What is the difference between an exchange rate and a purchasing power parity Introduction: The Currency Conundrum Greetings, fellow learners! Currencies play a pivotal role in the global economy. However, understanding their valuation can be perplexing. Today, we focus on two key metrics: exchange rates and purchasing power parity (PPP). While both relate to currency values, they differ in their approach and implications. Exchange Rates: The Market's Verdict Exchange rates are determined by the foreign exchange market, where currencies are bought and sold. They represent the price of one currency in terms of another. Exchange rates are highly dynamic, fluctuating every second. Factors like interest rates, inflation, and geopolitical events influence them. Exchange rates are crucial for international trade, investment, and tourism, as they impact the cost of goods, services, and assets across borders. Purchasing Power Parity: Balancing the Scales