What Is a Parity Price?

High price symmetry. In China, under the condition that there are multiple price forms, the price of the same commodity is relatively low, or when the price of the same commodity exists in multiple countries, it is a common name for a relatively low commodity price.

[píng jià]

Parity refers to the selling price of securities

In China, from 1961 to 1964, parity was formed correspondingly with the high prices of some commodities. Since then, some

Its advantage is to protect the price of basic necessities of the people.

1. Calm up

The reason why domestic people need foreign currency or foreigners need national currency is because these two currencies have the purchasing power of commodities in each issuing country; the ratio of the purchasing power of the currencies of the two countries is the "first and most basic basis for determining the exchange rate" The change in the exchange rate is also determined by the change in the ratio of the purchasing power of the currencies of the two countries, that is, the fluctuation of the exchange rate is the result of changes in the purchasing power of the currency. This theory is divided into two parts:

1. Absolute purchasing power parity: refers to the ratio of the equilibrium exchange rate between domestic and foreign currencies equal to the purchasing power or price levels of domestic and foreign currencies. Absolute purchasing power parity holds that the value of a country's currency and its demand are determined by the amount of goods and services that a unit currency can buy in the country, that is, by its purchasing power, so the exchange rate between the currencies of the two countries Can be expressed as the ratio of the purchasing power of the currencies of the two countries. The magnitude of purchasing power is reflected in the price level. According to this relationship, the rise in domestic prices will mean the depreciation of the domestic currency relative to the foreign currency. Relative purchasing power parity makes up for some of the shortcomings of absolute purchasing power parity. Its main point can be simply expressed as: the exchange rate level of the currencies of the two countries will be adjusted accordingly according to the difference in inflation rates between the two countries. It shows that relative inflation between the two countries determines the equilibrium exchange rate between the two currencies. On the whole, the purchasing power parity theory reasonably explains the basis for determining the exchange rate. Although it ignores the influence of other factors such as international capital flows on the exchange rate, the theory is still valued by Western economists and has been used in basic analysis It is widely used in mathematical models for predicting exchange rate trends. Absolute purchasing power parity is an early theory of purchasing power parity. Absolute purchasing power parity means that at a certain point in time, the exchange rate of the currencies of the two countries is determined by the ratio of the purchasing power of the currencies of the two countries. If the reciprocal of the general price index is used to represent the purchasing power of their respective currencies, the exchange rates of the two countries' currencies are determined by the ratio of the general price levels of the two countries. Using the exchange rate under the direct quotation method, Pd and Pi represent the absolute levels of domestic and foreign general prices, respectively. The absolute purchasing power parity formula is: Ra = Pa / Pb or Pa = Pb × Ra Ra: represents the exchange of domestic currency to foreign currency. Exchange rate; Pa: represents the domestic price index; Pb: represents the foreign price index, which explains the decision of the exchange rate at a certain point in time. The main factor of the decision is the purchasing power of the currency or the price level.

2. Relative purchasing power parity: refers to the relative changes in the purchasing power of currencies in different countries, and is the determining factor of exchange rate changes. It is believed that the main factor for exchange rate changes is the relative change in purchasing power or prices of currencies between different countries; compared with the period when the exchange rates were in equilibrium, when the purchasing power ratio between the two countries changed. The exchange rate between the currencies of the two countries must be adjusted. Relative purchasing power parity represents changes in exchange rates over a period of time, and takes into account inflation. After the end of the First World War in 1918, inflation and price increases caused by the indiscriminate bank notes issued by various countries during the war led economists to revise absolute purchasing power parity. They believe that the exchange rate should reflect the relative changes in the price levels of the two countries because the inflation will reduce the purchasing power of the currencies of the countries to varying degrees. Therefore, when both currencies experience inflation, their nominal exchange rate is equal to their quotient multiplied by the inflation rate of the two countries. That is, relative purchasing power parity describes the change of exchange rate in a certain period, that is, the ratio of exchange rates at two points in time is equal to the ratio of the general price indices of the two countries. ^[2]