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... the connection between exchange rates and commodity prices and thus the foundations to PPP theory and this principle is what I will address first in the section following this introduction. Section 3 examines what PPP whilst the fourth section analyses the relationship between the law of pone price and PPP. Examination of the absolute PPP condition is presented in section 5 and the sixth section discussed the relative PPP form with the aid of empirical interpretation. Section 7 discusses the validity of PPP. Concluding remarks are made in section 8. 2. The Law of One Price. 'The Law of one price states that in competitive markets free of transportation cost and official barriers to trade, (such as tariffs), identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency,' (Krugman and Ostfield 2000). For example, since the dollar equivalent price ...