Question: CFA question: 1997, Level 3.

1. Explain the following three concepts of purchasing power parity (PPP):
   a. The law of one price.
   b. Absolute PPP.
   c. Relative PPP.
2. Evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on:
   1. Short-term basis (for example, three months)
   2. Long-term basis (for example, six years)

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