PPP theory is to determine the exchange rate, one of the most fundamental theories, the basic idea is that the exchange rate depends on the price level, rather than the price level depends on the exchange rate. People need foreign currency because it has the purchasing power of the country's general goods. This is also explained by the fact that it has the purchasing power of the country. Therefore, the rating of domestic currency and foreign currencies mainly depends on the comparison of the purchasing power of the two currencies. PPP has two forms: absolute purchasing power parity theory and relative purchasing power parity theory. Law of one price according to which the price, assuming a market of perfect competition and the substitutability of domestic goods and foreign goods between the conditions of existence of the complete removal of transport costs, trade barriers and information costs, for a given product, with the same price in currency, in different locations will be the same, as the following formula: R=∑PA/∑PB (S=PIA/PIB)R (S) refers at the spot exchange rate, ∑PA (PIA) refers to the identical basket of product prices (index prices) of country A or currency A, and ∑PB (GDP) refers to the identical basket of product prices ( price indices) of country B or currency B. Economists use two versions of purchasing power parity: absolute PPP and relative PPP. Absolute PPP was described in the previous paragraph; it refers to the equalization of real price levels between countries. Relative PPP considers that the percentage change in exchange rates, over any period, is equal to the difference in the percentage price changes of different countries. It refers to the equalization of real price variations between countries. An absolute PPP implies a relative PPP, but middle of paper ......es other than the respective group entities are in this table. Question 3 Is AZ's management aware of the risks faced by the company and has it taken appropriate action? Question 4 Give examples of different proactive policies used by AZ to manage its transactional and operational exposure For those who are at risk, operational and financial management of the use of hedging and hedging contracts, which is early and delayed payment, swaps and futures contracts. For example, the company predicts that in the future, there will be a need for the US dollar and the RMB exchange rate compared to the end, in Arizona, the company purchased futures contracts to sell US dollars at 6.51/buy RMB, if the exchange rate rose to 6.2 RMB/1US$, the company can be arranged at 6.51RMB/1US$, this is offset by the risks of buying RMB