What real world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run. Explain

What will be an ideal response?

1. Not all products are traded internationally. As a result, there is no way to take advantage of profit opportunities to buy in one country and sell in another country, so exchange rates will not reflect exactly the relative purchasing power of currencies.
2. Countries impose trade barriers. If there are barriers to trade, it may not be possible to take advantage of profit opportunities to buy in one country and sell in another country, so exchange rates will not reflect exactly the relative purchasing power of currencies.
3. Products differ across countries as firms adapt products to to local tastes. As a result, consumers in one country might be willing to pay different prices for products than consumers in another country, and exchange rates might not adjust for that difference in the long run.