 In this section, I will be talking about the determination of the exchange rate in the long run. So, इसके लिए हमे पता होना चाही है, हे long run and short run होता क्या है? In economics, we often talk about short run and long run. Short run is a time period in which you hold many factors constant and consider some factors as variable and we call that particular time frame short run. Long run is a longer time period in which we explain all the factors and we assume that there are no constraints and they are all variables. So, we call that time period long run. So, the behavior of the exchange rate is different in short run and in long run. In short run, again, you know that the government has locked sometimes the exchange rate. They pack it, they devalue it intentionally so that our exports become cheaper. So, policies like this are brought into action in a certain time period. So, to understand that particular mechanism, we are talking about short run analysis. In short run, how to determine the exchange rate in short run? The government intervenes in short run but most of the rates of determination are from the interaction of demand and supply. In long run, since we are dealing with a situation in which none of the factors is being hold constant, this is a bit more complicated, complex and this is more complicated. So, when we analyze long run to determine the exchange rate in long run, there is a concept called law of one price. That is often seen. So, what is law of one price? Law of one price is that all the factors are not controlled in long run and are not held constant. So, it has been observed that because of this demand and supply interactions, eventually your exchange rate converts to a certain point and that is called law of one price. I am going to explain it further. Law of one price is that all your identical assets or any commodity if there are free forces of demand and supply, if there is no state intervention, no policies, no embargoes or anything like that, then regardless of location, the same price of it throughout the world, that particular commodity or financial instrument or financial asset, like we are talking about the exchange rate, the value of the exchange rate or currency, it will be one in the long run across the globe if we are considering that all the things are freely moving and there are no regulations. So, eventually the price of one is maintained by any asset or commodity. This is what is meant by law of one price. Now, when we look at the world, do you see any such thing? Any commodity or any financial instrument or stock or foreign exchange, you can take a type or dollar or pound, which cannot be of the same value throughout the world. This means that there are a number of factors which prevent the law of one price from happening or put the limitations that one price cannot happen. Therefore, we need to understand what are those factors which violate the law of one price. So, the most important element is the transportation cost. Now, you know that any commodity, if you live in a place where there is a field where that particular commodity grows, and your house is near to that growing place where it grows, then transportation cost will be less than that so it is possible that it will cost you 8 rupees to reach your house. It will cost you 12 rupees. And what you have to pay right now is of 20 rupees a unit. But if you take the same thing from this place and take another city, another morning or another country, then naturally transportation cost will go up and the distance will increase. And when transportation cost will go up, then the question is not created that the thing which you bought for 1 unit of 12 rupees or 20 rupees in your house, of IV cheese or buyer vendor, the same thing you will get in another city or in another morning for 20 rupees only. So, the factors which violate the law of one price and the most important factor is that is the differences in the transportation cost. So, transportation cost, the distance from the field or manufacturing place or from the factory to the market where it is being sold or reaching your house, then transportation cost will go up and the price will go up. Next important thing is the transaction cost. Transaction cost is not transportation cost. In transaction cost, we account for all kinds of expenses which have been used to reach you. And this does not mean that what you have spent on transportation cost. Transaction cost means that if we are selling biscuits or any other commodity, that particular or gold business, to reach that gold buyer, on its security, on its marketing, on its overall, you have kept some people who work on its sales and promotion, all those people who are spending, all those things you are spending, that particular thing together will be known as a transaction cost. So, in the context of financial instruments, here we take transaction cost, transaction cost is all the payments which you have rendered to perform the roles of the banks or brokers, to send any financial instrument to you, to the investor, all the services that you will give to the commission or fee, they will be accounted for as the transaction cost. Transaction cost and transportation cost are not the same. Transaction cost is different. Right now, it may include the agents commission, closing cost, title search fees, appraisal fees, government's whatever expenses you have to give, revenue key stamps, whatever additional expense you want, tax is given from the government to which we get the octorime, all these things that you have given, all these things are accounted for in your transaction cost. And since transaction cost is different from one place to another, the law of one price will be violated, there will be no value, of any commodity or financial instrument. Another important factor is the legal restrictions. So, sometimes, governments, to protect their local domestic production, they control by putting tariffs, quotas or any kind of restrictions. Now, when you have paid the tariff, you have paid the tax, for example, you have sold some things imported from China and Pakistan, then the government of Pakistan had put a tariff on it, that if you import it, you will have to give extra money. Now, if you have given a tariff of Rs. 6 per unit, then it will be added to the cost. So, the law of one price will be violated. So, in this way, we see many capital controls, there are immigration restrictions, there are embargoes of trade, there are trade restrictions, you have to take a license to export it. All these things will make a difference in prices and your law of one price will not work. Another very interesting factor is the structure of the market. The structure of the market is that in the market, how many buyers and sellers are there, how much market power it has, if it has monopoly to sell anything, then obviously it does not have a competitor, then it will charge the high price of your choice of heart. And if you import anything, then it is possible that the product you have ordered from that country, the price of that particular product is very cheap, but because in this particular country, you are a distributor, of that particular commodity, then what will you do? You will count the market structure and you will see that you have a single soul distributor, so you will charge a high price. So, even if you do this, the price differential will come and the law of one price will be violated. If there is a competition, then prices are low, if there is more imperfection in the market, then the seller has more power, therefore, he charges a higher price and he controls the supply so that the high price thing can be maintained, so by doing this, your prices go from places to places and law of one price does not operate. So, another important thing which we need to look at is sometimes, if a seller has economies of scale, due to that, the prices are different and the law of one price is not executed in any place in the world.