Final answer:
Parity in international markets means being able to trade or invest at equivalent prices across different markets, a concept known as purchasing power parity (PPP). PPP is the rate which equalizes the cost of internationally traded goods between countries, minimizing arbitrage opportunities that arise from price discrepancies.
Step-by-step explanation:
Parity in international markets refers to the concept where prices for similar goods and services should be equal when measured in a common currency, after accounting for the exchange rates. This concept is encapsulated in the definition of purchasing power parity (PPP), which is the exchange rate that equalizes the prices of internationally traded goods across countries. Among the options presented, the best one is (b) Being able to trade or invest at similar prices (e.g., in different currencies) in international markets. This reflects the core idea of PPP which ensures that the purchasing power of different currencies is aligned in a way that prevents arbitrage opportunities due to price discrepancies for the same product in different markets.
Over time, exchange rates should reflect the buying power of currencies in terms of goods that are traded internationally. If it were much cheaper to purchase goods like oil, steel, computers, and cars at one exchange rate in one country, businesses would buy in the cheaper country and sell where prices are higher, profiting in the process. This is the mechanism that drives the alignment of prices, ensuring that such arbitrage opportunities are temporary and tend to correct themselves over the long term, leading to a state of parity.