If more than one kind of money is used as a medium of exchange, the mutual exchange ratio between them is determined by their purchasing power.
As soon as domestic inflation begins to affect the prices of some commodities, long before it has exhausted all its effects upon the greater part of the prices of commodities and services, the price of foreign exchange tends to rise. The rise in foreign exchange rates merely anticipates the movement of domestic commodity prices.
Exchange ratios are permanently fluctuating. There is nothing constant and invariable in them. They defy any attempt to measure them.
