Which statement best describes purchasing power parity (PPP) and uncovered interest rate parity (UIP)?

• A. PPP implies exchange rates adjust to equalize domestic price levels; UIP suggests expected currency moves offset interest rate differentials under no-arbitrage.
• B. PPP implies interest rates equalize across countries; UIP implies exchange rates are fixed.
• C. PPP implies central banks set exchange rates; UIP implies banks hedge currency risk.
• D. PPP implies deficits drive exchange rates; UIP implies exchange rates fix.

Answer: (B)