The word "parity" came to Russia from the Latin language and means "equality." It has many meanings in various areas of human life, but today we will consider only semantic roles in the financial and economic sphere. In particular, it will be told what price and currency parity is.
In the first case, it means an equal ratio of the cost of different types of products. Here the basis is taken, where the prices of goods are set on the principle of equivalence, which is identical to the rate of return. At the same time, this indicator will be necessarily preserved if the balance in the dynamics has insignificant deviations or remains unchanged. Compliance with such parameters is the main economic condition for balanced and proportional development, ensuring comparability of the degree of efficiency in terms of profitability. In addition, knowing exactly what parity is, all market partners are confident that the conditions for expanded reproduction are fulfilled.
Currency parity is the ratio between two different currencies, which is established strictly by law. Equilibrium is the basis of the entire international exchange rate, deviating from the intended balance. Until 1978, it was determined by the gold content. After the next meeting of the participants of the specialized monetary fund, the so-called borrowing rights were announced as the basis for calculation. This is a special type of equivalent that is issued by the IMF and is used only through central banks of states for intergovernmental settlements.
In addition, in 1979 the monetary union of European countries was created, fixing all the obligations of the EEC (European Economic Union) provided for by law. He must explain to all new participants what currency exchange parity is , keep it within strictly established limits, and also not allow deviations of mutual market rates from agreed boundaries. This applies to almost all known world currencies. For example, the parity of the ruble against the dollar or the pound against the euro is protected in this way.
It is worth noting that the total number of factors that affect currency parity can reach several tens. All of them are psychological, structural, economic, legal or political. The most important of them: state regulation, discount rates, the state of national income and the trade balance, expected inflationary rates, as well as the money supply and its values. Moreover, in all cases, the GNP (gross national product) of the states participating in the international exchange is fundamental.
The question of what parity of foreign exchange transactions is still considered quite interesting and open, therefore, despite the fact that the latest changes in this regard were made more than thirty years ago, the balance itself remains unchanged. Although the constant threat of crisis may force a review of the base in the near future.