The effect of the difference between local and U.S. inflation for the year on net assets
(that is, shareholders' equity) measured in nominal dollars. If only the differential rates
of U.S. and local inflation are reflected in the exchange rates (parity), the parity
adjustment and the translation adjustment net to zero. Therefore, the sum of the parity
adjustment and the translation adjustment represents the effect of exchange rate changes
in excess of (or less than) that needed to maintain purchasing power parity between the functional currency and the dollar.