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Interest Rate Parity and Purchasing Power Parity - PDF

   

Added on  2020-10-22

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Assessment

Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY..................................................................................................................................1TASK 1............................................................................................................................................1Main factors affecting exchange rates including the Purchasing Power Parity (PPP) andInterest Rate Parity (IPR).............................................................................................................1TASK 2............................................................................................................................................2What factors influence the cost of capital by Emirates Group while investing within thecountry.........................................................................................................................................2CONCLUSION................................................................................................................................5REFERENCES................................................................................................................................6

INTRODUCTIONFor a business, maintaining of the exchange rates, this will help in setting up the priorities ofthe customers and setting a purchasing mindset. This will help the setting of the positive businessenvironment that will help in carrying out of the business operations in most effective andsuitable manner. The current assignment is presented in context of The Emirates Group. It is aUAE based Airline service provider firm.The maintenance of purchasing power parity PPP and interest rate parity IRP. Besides this,the influence it lays on the operations of a business enterprise will lead to the assessment ofinvestment processes that will lead to setting up of overseas project by an MNC. This will help insetting up of the operations that are been carried out by organisation.MAIN BODYTASK 1Main factors affecting exchange rates including the Purchasing Power Parity (PPP) and InterestRate Parity (IPR)There are various tools and factors that impacts the overall operations and setting up of theoperations within an organisation. In order to maintain the exchange rates of the organisation, theSelected Airline firm is required to look after the proper assessment of the factors that impactsthe overall planning of the operations and thus, will lead the enterprise to carry out the operationsin most effective way (Jurek and Stafford, 2015). Some major factors that impacts thePurchasing Power Parity (PPP) and Interest rate Parity (IPR) are:Inflation rate: This is the most crucial factor that is required to be undertaken by TheEmirates Group. A country with low inflation rate will be seen as a good investmentoption. This indicates that the organisation will see a faster growth in that country. Thehigh level of inflation can lead to depreciation and causes an increase in higher interestrate.Interest rates: It is another important factor that impacts the valuation of currency and exchangerates within a country. It leads the rise in valuation of a country’s currency and hence will lead tothe proper planning of the setting up of business with higher exchange rates in a country. Theinterest rate parity will help in improving overall operations of the organisation to meetoperational requirements of an organisation (Eades and Eades, 2017).1

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