In the long run, we analyze the exchange rate in the foreign exchange market and the money market-through their respective equilibrium and the equilibrium between the two markets, we find the relationship between a country's money supply, interest rate, inflation rate and expected factors and the exchange rate. In order to make the analysis more comprehensive, here, we want to put the exchange rate in a larger environment, which includes not only the foreign exchange market and the money market, but also the commodity market. Our basic argument is that in the long run, the exchange rate is closely related to the price difference between the two countries. There is a simple reason. The role of exchange rate is to help and promote the circulation of goods between the two countries. If there are no trade barriers between the two countries (such as tariffs, quotas, transaction costs and non-tariff barriers), the price of the same commodity in the two countries should be exactly the same. Otherwise, traders will buy from country A with a lower price and sell in country B with a higher price ... This "arbitrage" activity will eventually make the price of the same commodity exactly the same in two countries. The formula is as follows: PiUS = ECBDM× PiG, where PiUS represents the price of a commodity I in the United States, PiG represents the price of this commodity in Germany (G), and ECBDM is the exchange rate between the two countries. This formula can be rewritten as: ECB DM = PIUS/ pig, indicating that the exchange rate between the two countries is related to the price of the two countries. However, this formula is only in terms of a commodity I, if extended, it does not refer to a commodity, but to all commodities in a country. Then, the relationship between the exchange rate and the price level between the two countries can be expressed as: ESODMdPUSPG. This is the famous "purchasing power parity theorem": the exchange rate between two countries is equal to the purchasing power ratio of the currencies of these two countries. The policy implication of this theorem is obvious: if the price level (PUS) in the United States rises, the dollar will depreciate in proportion to the price increase. On the other hand, if the price level in the United States falls, the dollar will appreciate in the same proportion. Mark's situation is similar: if the price level in Germany rises, the mark will depreciate. But the dollar will appreciate relative to the mark. On the other hand, if the price level in Germany falls, the mark will appreciate and the dollar will depreciate. However, if the price levels of the two countries rise or fall by the same amount, the exchange rates of the two countries will not change. Editor's recommendation: the way the central bank intervenes in the exchange rate