Classical economics made simple predictions about exchange rates; it was said that a basket of goods would cost roughly the same amount everywhere in the world, when paid for in some common currency (like gold)1.
This is called the purchasing power parity (PPP) hypothesis, also expressed as saying that the real exchange rate (RER) between goods in various countries should be close to one.
For instance, a Big Mac cost $7.84 in Norway and $2.39 in Egypt in January 2013, at the prevailing USD exchange rate for those two local currencies, despite the fact the two products are essentially the same.
The deviation in Purchasing power parity allows rural Indians to survive on an income below the absolute subsistence level in the rich world.
1 For instance, economists in 1949 expected that one could buy similar quantities of meat in New York for one dollar as in Tokyo for 360 Yen, the pegged nominal exchange rate at the time.
It was thought that deviations from this would mostly be caused by problems of supply, and the fact that exchange rates were not allowed to float to market levels by most of the world's central banks (before the 1970s and the end of the Bretton Woods era of gold convertibility).