• Home
  • Subjects
  • Finance & Accounting
  • Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the

Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the - Essay Example

Only on StudentShare

Extract of sample
Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the

The rate of exchange between two currencies can be termed as equilibrium when there is an equivalence in the purchasing powers of these countries at the domestic level (Taylor & Taylor 2004, p. 135). The theory of Purchasing Power Parity The formula for calculating purchasing power parity is as follows: S=P1/P2, where S refers to the rate used to exchange currency one with currency two, P1 is the price that good “x” costs when purchased in currency 1, and P2 is the price at which good “x” sells when purchased in currency 1. Based on the Purchasing Power Parity, there is an adjustment in the exchange rate in order to ensure that similar goods in two countries can be bought at the same price when the same currency is used to express the value of the good. There tends to be various forms that the Purchasing Power Parity takes. Some of the most common forms that this theory takes include the absolute Purchasing Power Parity and the Relative Purchasing Power Parity (Apte et. al., 2001). The concept of Absolute Purchasing Power Parity holds that the rate of currency exchange between two countries remains the same as the price level ratio in these countries. The absolute PPP borrows from the law of one price. Based on one price law, the cost of a certain product should remain constant across several countries. ...Show more

Summary

Name: Tutor: Course: Date: University: Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the empirical evidence for and against it. Introduction The key proponent of the PPP theory is Gustav Cassel who developed the theory in 1920…
Author : jamel19
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the"
with a personal 20% discount.
Grab the best paper

Related Essays

Discussion of the various issues related to corporate governance and its impact on financial performance of companies
For the purpose of this study four of U.K’s top P.L.Cs from three different sectors are used and analyzed. This includes two major UK banks namely HSBC and RBS (banking sector); British Petroleum P.L.C. (Oil & Gas sector); and J. Sainsbury (Retail sector).
54 pages (13500 words) Dissertation
Critical Management Theory(CMT) and its application as an analytical tool for resolving problems in a post-modern organisation
The tasks relating to management of an organisation have become more complex comparing to traditional organisational concept. Many critics have defined this modern period as ‘Post-Modern’, because there have been significant changes in the human activities and their thought processes.
8 pages (2000 words) Coursework
Discuss the Proposition that a Company's Dividend Policy is Irrelevant to its Market Value.
The assumption is that dividends not paid are reinvested by the company to generate more profit, thus higher stock values” (Dividend Irrelevance Theory n.d.). Different scholars have different opinions regarding dividend irrelevance and dividend relevance.
7 pages (1750 words) Essay
Parity Theories
Running Head: Parity Theories Parity Theories [Writer’s Name] [Institute’s Name] Parity Theories Purchasing Power Parity Theory Purchasing power parity theory of exchange rate is based on the idea of equivalence in the purchasing power of countries, which leads to equilibrium in the exchange rate between the currencies of countries.
8 pages (2000 words) Essay
Recommendation: its advantages and disadvantages
These factors will reduce the production capacity of the asset as compared to when it was still new. Therefore, for the company to take care of these decreases, it has to calculate the depreciation value of the asset. Depreciation is therefore calculated using the estimated remaining useful life of the asset and the initial cost of the asset.
4 pages (1000 words) Essay
Read the Bourmistrov and Kaarboe (2013) paper and identify its key contribution(s). Critically evaluate and discuss the role of
The intensifying market competition makes it difficult for organisations to address various business aspects effectively, and hence many organisations are challenged by operational pitfalls. Earlier, managements considered accountants as technical partners who deal with account preparation and reporting.
10 pages (2500 words) Essay
Purchasing Power Parity
The paper aims at testing whether the real exchange rates that are depicted are mean reverting or not. In the article, the author goes through a number of selected African countries, pointing out the application of the Purchasing Power Parity. In her
2 pages (500 words) Assignment
The Effect of Internal Audit Reports to Stakeholders on Audit Quality and Earnings Performance: An Empirical Study of the Companies Listed on the London Stock Exchange (LCE)
h to evaluating and improving the efficiency of the company’s governance, internal controls, and risk management (Institute of international Auditors, 2010, p. 1). The quality of the audit plays a vital role in maintaining an efficient market environment. However, an
10 pages (2500 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT