Discuss the theory of purchasing power parity, by considering its Essay

Discuss the theory of purchasing power parity, by considering its various forms and examining critically its assumptions and the - Essay Example 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 â€Å"x† costs when purchased in currency 1, and P2 is the price at which good â€Å"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. The similarity in price should be  in accordance to the currency value in the economies of both countries. This should take consideration of all other prices, such as trade regulations and other factors affecting market demand and supply, which should remain the same between these countries. The absolute Purchasing Power Parity also holds that there the purchasing power of the foreign and the domestic policy should remain the same. This means that there should be no variation in price when a consumer wants to exchange a foreign currency for a domestic currency, or a domestic currency for a foreign currency (Almas 2012, p. 1093). In orde r to meet the premises for the absolute Purchasing Power Parity, several conditions have to be fulfilled. One condition that must be met is free trade of the goods from each country in the international market. The other condition is that there ought to be a compromise of the price index of the price index for each of the two countries, which will be involved in the exchange of goods. Absolute PPP can result from the differences that exist in weighing, regardless of the fact that the law of one price can hold for certain goods across nations. While determining the absolute purchasing power parity, there is a tendency to examine the changes taking place in the level of the prices, which can be calculated easily (Apte et. al., 2001). Relative purchasing power parity can also be regarded as another form that the theory of PPP takes. Relative PPP focuses on the changes in the inflation rates, which may be anticipated, in relation to changes in the exchange rates between countries. The r elative purchasing power parity explores the change and variations in prices that take place between two countries. Relative PPP posits that there tends to be a change in the exchange rates in order to ensure that the variations and differentials, which inflation causes, can be compensated for and covered (Almas 2012, p. 1097). In the relative purchasing power parity, the formula that explains the relationship is as follows: S1/S0= (1 +

Global warming - new business challenges Essay Example | Topics and Well Written Essays - 1000 words

Global warming - new business challenges - Essay Example These losses are elevated in pollution and other devastating factors depleting the richness of these natural resources. Over exploiting will result in the extinct of these resources and loss of many diversified species. A flood, deludge whether is something which runs any business entitew into huge losses. heat wave like the one that gripped Britain in 1995 led to losses of 1.5 billion pounds1(Swiss Re, Business week) A business entity which ignores the basic external factors will lead to failure. Environment consiousness should be considered along with the development Global warming does reflect its adverse effects at places even far from places of pollution origin. Thus it reveals that the global warming issue is a concern for entire world but not for particular region. Business entities has to look into diversified and complex situations where in it will necessary to look in to issues like1 the demographic, economic conditions and the atmospheric conditions. The main challenges put in front of any organization would be the investment into non-revenue generating entities, high initial investments, the business planning complexities, extra employees benefits, safety and security systems. Non revenue generating entities are the features added in a production or manufacturing unit to make the ambience more secure like the alarm and security systems, the greenery maintaining. High initial investments are required to install these specialized devices in an work environment and complex to maintain as th equipments and devices are specially configured. The employee benefits are necessary to put into to safe the employee interests and to avoid turnover frequently. The employee benefits include high insurance payments, compensation, rehabilitation, pensions and medical allowances etc. Chapter-04: Case example-China coal industry The devices like the solar energy systems are costly as the market for the devices is limited and the technicians are to be maintained separately for operating these devices. China a rapidly developing Asian country has enhanced its energy utility base to nearly three times. The usage of home appliances has pressurized the domestic power consumption. The main raw material for power generation is coal extracted from earth crust. Depending upon the quality of th2e coal extracted the efficiency of energy produced would alter. The coal as a raw material has extremely polluted which spreads far to the neighboring countries. The increase in global-warming gases from China's coal use will probably exceed that for all industrialized countries combined over the next 25 years, surpassing by five times the reduction in such emissions that the Kyoto Protocol seeksNew York times2. The carbon dioxide emanating from Chinese coal plants will last for decades, with a cumulative warming effect that w ill eventually overwhelm the cooling from sulfur and deliver another large kick to global warming. China being a the worlds most populous country needs huge energy resources, however the huge expanse of china has provided with some gifted reources which were squised to the extreems by the business entities. The utilization of coal has risen to an alarming concern effecting china and its neighboring count