Currency rates of exchange appear to be moving in response to so many factors that it makes it almost impossible to ascertain where the rate of exchange is likely to be headed. But rather than paying attention to the multitude of variables, it is more sensible to focus on the essential variable.
As far as the currency rate of exchange determination is concerned, this variable is the relative changes in the purchasing power of various monies. The relative purchasing power of various monies sets the underlying rate of exchange.
A price of a basket of goods is the amount of money paid for the basket. We can also say that the amount of money paid for a basket of goods is the purchasing power of money with respect to the basket of goods.
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