Question

What are the international parity conditions? What are they used for, and how useful are they? Which parity condition is most likely to hold, and why?

Answer 1

International parity condiions are equilibrium conditions that establish linkage between financial prices in the absence of arbitrage.

This is useful for financial strategic decisions suggested by each side of parity conditions.this define international financial break even points encompassing alternative strategies .this help to private investor to make optimal financial decisions regarding choice of currency for borrowing.measuring currency risk exposure.this help to public investors to evaluate the strength of national currency.

The law of one price which is known as purchasing power parity is most important concept which is used in finance.this compare the cost of a basket of good in one country with the cost of same goods in another country.