假设在某一年份，埃及和英国的物价水平都是100，且两国货币之间的汇率为1埃及镑兑1英镑。在这种情况下，汇率是相等的。由于兑换的动机在于满足对英国商品的需求，因此埃及不会对英镑产生大量需求，也不会远离英镑。
然而，如果埃及的物价水平上升到200，那么英镑在埃及的价值将翻倍，汇率将变为1埃及镑兑0.50英镑。因此，由于英国相对价格下降，对英镑的需求将会产生；而由于埃及相对价格上升，对埃及镑的需求将会减少。这将导致英国人对埃及镑的需求下降，他们对埃及商品的需求也随之减少，他们必然更倾向于购买本国商品，因为埃及商品的价格已经翻倍，而他们自己国家的商品价格保持不变。
因此，汇率会随着发行货币国家的商品价格变化而变化。如果就另一国而言，某一国家的物价水平因例如货币供应量的增加而上涨，那么这两国之间的汇率必然发生变化，导致物价上涨国家的对外价值下降。一国货币与外国货币之间的汇率，将与其他外国货币之间的汇率关系保持一致。 换句话说,假如伊拉克第纳尔等于100伊朗里亚尔、200意大利里拉或400法国法郎,那么各外币之间的汇率就会是:在伊朗,1伊朗里亚尔兑2意大利里拉或4法国法郎;在意大利,1意大利里拉兑2法国法郎或0.5伊朗里亚尔,依此类推。事实上,如果每个国家都任由其货币的对外价值随物价水平的波动而浮动,而不对国际贸易以及外币与本币之间的兑换施加严格限制,情况就会如此。然而,一个国家可能会试图在国内物价高涨的情况下维持其货币的对外价值,例如通过减少进口许可证的数量来限制本地进口商对外国货物的需求。在这种情况下,各国之间汇率的协调性就会被打破。只有当某些国家选择对其外汇交易施加限制时,不同国家之间的汇率才可能出现这种差异。因为如果没有限制,商人便能够进行货币兑换并从中获利。于是其他人会争相抓住这一商机并效仿,这反过来又会使各种汇率之间重新恢复协调。
Let us suppose that in a specific year, the level of prices in Egypt and England were 100 in both countries, and that the exchange rate between them was 1.00 Egyptian pound for £1.00 sterling. In this case the exchange rate would be equal, and since the incentive to exchange is to achieve a sufficiency in the need for English goods, therefore, no great demand for, nor turning away from pounds sterling would occur in Egypt. However, if the price level were to rise in Egypt to 200, the pound sterling value would double in Egypt, and the exchange rate would become 1 Egyptian pound for £0.50 sterling. Therefore, a demand for sterling pounds would be generated due to the relative price decrease in England whereas, the demand for the Egyptian pound would diminish due to the relative price increase in Egypt. This would entail a decrease in the demand for the Egyptian pound by the English, and their demand for Egyptian goods would decrease, and they would inevitably prefer their own goods with their present prices because the prices of Egyptian goods would have doubled while their own prices remained the same. Therefore, the exchange rate would change according to changes in the commodity prices of the country which had issued the currency. If the price level in one country rises as far as another country is concerned, due for instance to the increases in money supply, the exchange rate between these two countries would inevitably change, leading to a decrease in the foreign value of the country in which the prices had risen. The exchange rates between the currency of one country and foreign currencies would be in line with the relationship established between the other foreign currencies’ exchange rates themselves. In other words, if for instance the Iraqi Dinar equalled 100 Iranian riyal, 200 Italian liras or 400 French francs, the exchange rates between the foreign currencies would therefore be, in Iran, 1 Iranian riyal for 2 Italian liras or 4 French francs, and in Italy it would be 1 Italian lira for 2 French francs or 0.5 Iranian riyal and so on. This is in fact what would happen if every country left the foreign value of her currency to fluctuate according to the fluctuation of price levels, without imposing heavy restrictions upon international trade and upon the transfer of foreign currency into local currency or local into foreign currency. However, a country may attempt to sustain the foreign value of her currency despite high prices at home, by restricting the local importers’ demand for foreign goods by reducing the number of import licences, for instance. In such a case, the harmony between the various exchange rates in the various countries would be disturbed. This difference between the exchange rates in different countries could not occur unless some countries opted to impose restrictions on their foreign currency transactions. Because if there were no restrictions, a businessman would be able to exchange the currency and make a profit. Thus other people would rush to seize this business opportunity and do the same, which would in turn lead to the establishment of harmony between the various exchange rates once again.