Question

What is the formal representation of the law of one​ price, if P is domestic price for good​ X, P* is foreign price for the same​ good, and E is the exchange rate​ (units of domestic currency per units of foreign​ currency)?

Answer 1

P= EP*

Step-by-step explanation:

The formal representation implies the formula for the law of one price. This law highlights how exchange rate are used to derive the value of domestic products.

Thus to get the the value of domestic product (P) we multiply the value of the exchange rate (E) times the foreign currency price or value (P*).