Discuss the relationship between Purchasing Power Parity (PPP) and operating power operating exposure.

Operating Exposure is risk that the financial position of a company might get affected by fluctuations in foreign exchange rate . These affect the purchasing power . For example , as country A 's currency devalues against country B's curency . The importers of A will have to face the consequences and pass on the burden of cost to the customers , thus diminishing their purchasing power.

Purchasing Power Parity states that their should be no difference between prices of goods in two countries .

So the difference caused in PPP due to the opearting exposure should be compensated by equal fall in inflation , so here inflation will act a bridge to match the disparity .