A more useful offshoot of absolute purchasing power parity is relative purchasing power parity. Relative purchasing power parity claims that the exchange rates between countries will adjust over time to reflect their relative inflation rates. If hFC and hUS are the inflation rates in a foreign country and the US, respectively, relative purchasing power parity claims that the expected change in the spot rate between the currencies (DER) is given as: DER ¼ E(S1) S0 1 ¼ hFC hUS 1 þ hUS , which is equivalent to: 1 þ DER ¼ E(S1) S0 ¼ 1 þ hFC 1 þ hUS , where S0 and E(S1) are the current spot exchange rate and the expected spot rate one year in the future, respectively. In sum, relative purchasing power parity is the idea that the rate of change in the price level of commodities in one country relative to the price level in another determines the rate of the exchange rate between the two countries’ currencies. [See also International fisher effect]