One important reason to study the purchasing power parity theory is be

One important reason to study the purchasing power parity theory is because

A) investors should borrow in a foreign currency, when there is a forward discount.
B) when inflation rates differ across international borders, PPP provides a baseline forecast of future exchange rates.
C) forecasting exchange rates is difficult and PPP makes it easier.
D) it provides currency dealers with a way to identify arbitrage opportunities.

ANSWER

Answer: B