Understanding Parity Conditions: Theoretical Foundations for US Investment

Feb 15, 2026

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This overview explores the theoretical basis of parity conditions in investment, focusing on the law of one price and arbitrage opportunities. We highlight the concept of risk-adjusted expected returns, emphasizing that these returns should equalize across assets. Additionally, we discuss the neutrality of money and how exchange rates adjust to reflect interest and inflation rates. The principle of arbitrage, or "money for nothing," plays a crucial role in maintaining market equilibrium. Understanding these concepts is essential for making informed investment decisions in the US market.

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Understanding Parity Conditions: Theoretical Foundations for US Investment

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