Fundamental Analysis - Purchasing Power Parity Model

The purchasing power parity (PPP) forecasting approach is based on the Law
of One Price.
It states that same goods in different countries should have identical prices.
For example, this law argues that a chalk in Australia will have the same price
as a chalk of equal dimensions in the U.S. (considering the exchange rate and
excluding transaction and shipping costs).
That is, there will be no arbitrage opportunity to buy cheap in one country
and sell at a profit in another.
Depending on the principle, the PPP approach predicts that the exchange rate
will adjust by offsetting the price changes occurring due to inflation.