Relative Purchase Power Parity

AAA

DEFINITION of 'Relative Purchase Power Parity'

An expansion of the purchase power parity theory, which suggests that prices in countries vary for the same product but that they differ by the same proportional rate over time. The reasons suggested for this price difference include taxes, shipping costs and differences in product quality.

INVESTOPEDIA EXPLAINS 'Relative Purchase Power Parity'

The relative purchase power parity condition suggests that countries with higher rates of inflation will have a devalued currency.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. New York Dollar

    The buying power of a U.S. dollar in the city of New York. The ...
  3. Currency

    A generally accepted form of money, including coins and paper ...
  4. Starbucks Index

    A representation of purchasing power parity published by The ...
  5. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  6. Big Mac PPP

    A survey done by The Economist that determines what a country's ...
Related Articles
  1. Forex Education

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  2. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  3. Forex

    Understanding Currency Carry Trade

    A currency carry trade is a long-term investment strategy used primarily by large institutional investors. The purpose is to make a profit over time from differences in interest rates between ...
  4. Forex Fundamentals

    What Would Have To Happen For The Iraqi Dinar To Become A Stable Investment?

    What factors would cause price changes in the controversial Iraqi dinar?
  5. Forex Fundamentals

    Is the Iraqi Dinar Investment a Wise Investment?

    The Iraqi dinar is a hot investment--but is it a wise one?
  6. Forex News

    How The Forex "Fix" May Be Rigged

    When it comes to forex, some types of "fixes" are legal. But some really aren't.
  7. Forex Education

    From Mrs. Watanabe To Abenomics: The Yen's Wild Ride

    Relatively recent upstarts like the euro and the yuan may hog the currency headlines these days, but for sheer drama and gut-wrenching volatility, no currency can match the venerable Japanese ...
  8. Forex Education

    Position Sizing: The Way To Profit In Forex

    Position sizing will account for the quickest and most magnified returns that a trade can generate.
  9. Forex Education

    Why China's Currency Tangos With The USD

    Investopedia explains: It takes two to tango, but unless both partners move in perfect cohesion, a sequence of graceful maneuvers can be reduced to a series of clumsy moves. The latter depiction ...
  10. Forex Education

    The Hazards Of Currency Movements

    Devaluation and revaluation are official changes in the value of a nation’s currency in relation to other currencies. The terms are generally used to refer to officially sanctioned changes in ...

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center