What is the price of parity?
The parity price concerns the level at which the price of the asset is directly associated with the related price. The concept exists with several types of assets and differs slightly with each. The parity price can also refer to the theory of how international exchange courses are fluctuating and settled. One example would be that with foreign currencies, which rather than their exchange courses freely hovering on the market, in relation to other currency are set to a specific level. This often happens with developing nations that determine their currency rate in terms of the US dollar. This rate is a parity price. These are financial products that give the holder the right to choose the purchase of another asset at a specified price on the specified date in the future. Holding such a possibility can be profitable, depending on the market price of the asset to this future date. If it is HiGher than the price that the option holder can buy, he will have an immediate profit.
The possibility can be purchased and sold before the maturity date. The price people pay for this option will vary over time, depending on how likely this option is to end profitable. The partition price of this option is when the market price for the sale and purchase of an option equals its own value, which is the amount of profit that someone who has the opportunity today would end if the market price for the basic asset remains unchanged from now on and the due date.
The term parity price can also be used to indicate the parity of purchasing power. This is the theory that in the long -term heritage of exchange rates of currency will find and maintain the level of position. The theory is that this position is one that will suffice the same amount of money goods in both countries. For example, the exchange rate between the United States and Japan could settle on $ 1 per 100 yen. The theory would say that for example, a hamburger, which costs 2 $ in the US, would cost 200 only in Japan.
In fact, there are severalIko reasons why this theory is not literally published. One of them is that it works on the basis of the fact that both countries and in fact all countries make up one market. In the example of a hamburger, however, a hamburger offered for sale in Tokyo will not be interested in the buyer in New York. Another problem is that the demand for products is not universal. Hamburger considered poor quality refreshments in the US can be considered luxury food in other countries, and thus control a relatively higher price.