What is the difference between OER vs PPP? What fundamentally drives them? Shouldnt an arb opportunity exist and wouldnt that difference then go away? My understanding of OER is the official nominal exchange rate that is quoted by banks and is used by travelers to exchange money. PPP is an estimated exchange rate that is a function of the same good that is sold in different countries (causes being difference in costs/living standards). Is PPP the "real" exchange rate? For a given product, say a hamburger and OER rates of A:B of 10:1, let's say that we can buy 5 hamburgers in A at 20 units of A currency for a total value of 100 A dollars. If we bring them to B and in B, hamburgers are worth 3 units B currency, then our 5 hamburgers are now worth 15 B. If we use the OER to convert back to A, then we would have 150 A of value. Shouldn't this arb go away?
GDP numbers (nominal or real) from various countries are usually reported in their own currency. If one wanted to compare GDP between countries, one would have to use an exchange rate to convert to some common currency. What exchange rate should be used (OER vs PPP... and are there others?) and which GDP (nominal vs real) should be used? My intuition is that OER is usually use and its on nominal GDP (since real is usually indexed but its still possible to compare real by taking inflation and exchange rates into account based on difference between the two years that real GDP are indexed to?)
How do interest rates and inflation affect currency strength (in general?)?
Apologies if these are simple macro concepts. I have a limited understanding