Purchasing power parity (PPP)
The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies. |
Similar financial terms
Relative purchasing power parity (RPPP)Idea that the rate of change in the price level of commodities in one country relative to the price level in another determines the rate of change of the exchange rate between the two countries' currencies.
Power Cap
A derivative that pays off from the long's perspective in an exponential manner. If the current market price of the benchmark is greater than the strike, then the long receives payment. The payment is determined by raising to the predetermined power the difference between the current price and the strike price. For the case of a 2 power cap, or raised to the second power, the difference between the current market and the strike is squared. For a cubed power cap, the payoff would be the differenc ...
Power Grid™
A matrix which enables an analyst, investor, portfolio or risk manager a quick and incisive look at the option characteristics of a group of countries or corporations. In the case of countries, such as the G-7, the equity, credit and currency markets are comparable in terms of standardized statistics such as volatility. This tool helps to identify imbalances and potential arbitrage situations.
Spot futures parity theorem
Describes the theoretically correct relationship between spot and futures prices. Violation of the parity relationship gives rise to arbitrage opportunities.
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C=S+P-PV(k).
