The essence of the currency exchange rate is the relative purchasing power of various monies

Frank Shostak : The Essence of the currency exchange rate is relative purchasing power of monies.

He says it would make more sense to identify the essence that dictates the currency rate of exchange determination.

The state of the balance of trade is a key factor in currency exchange rates determination, he says.

Frank Shostak : The key factor in the currency exchange rate determination is the relative purchasing power of various monies.

He says an arbitrage is set in motion once the rate of exchange deviates from the exchange rate as implied by the relative Purchasing power of monies, he says.

The key issue is the price of a good in the US is one dollar and in the Eurozone the price is two euros.