Report on International Finance
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Added on 2020-04-21
Report on International Finance
Added on 2020-04-21
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Running head: INTERNATIONAL FINANCEInternational FinanceName of the University:Author’s Note:Course ID:
1INTERNATIONAL FINANCETable of ContentsIntroduction:....................................................................................................................................21. Describing the purchasing power parity with both problems and factors affecting purchasingpower parity:....................................................................................................................................22. Analysing and discussing on price of of Big Mac in local currency against US dollars in 10selected countries:............................................................................................................................53. Determining how much a currencyof a country is overvalued or undervalued against USdollars:.............................................................................................................................................7Conclusion:......................................................................................................................................9References and Bibliographies:.....................................................................................................10
2INTERNATIONAL FINANCEIntroduction:The focus is mainly on the Purchasing power parity of McDonald's, which could help inidentifying the relationship between exchange rates and prices of the product. The report directlyprovides relevant explanation regarding Purchasing power parity which could be helpful inunderstanding the benefits reaped by McDonalds. Moreover, there are relevant focus on bothproblems and factors that is affecting Purchasing power parity. Relevant analysis and discussionis conducted regarding the price big Mac against US dollars in different countries. Moreover, theevaluation of overvalued and undervalued of the currency against US dollar is also depicted,which could mainly help in understanding the relevant income generated from Big Mac. Theevaluation of currency strength could eventually help in identifying the impact of currencyconversion on the overall revenue of the company. They could you eventually allow thecompany to identify the changes in that needs to be conducted for increasing profitability frominternational business. Lastly, relevant identification of Purchasing power parity on the BIGMAC prices can be identified, which could directly help in identifying the relevant revenuegenerated by the company.1. Describing the purchasing power parity with both problems and factors affectingpurchasing power parity:Purchasing power parity is mainly identified to be an equilibrium which is identifiedbetween purchasing price that is provided by citizens in US and other countries. You foreignexchange parity models directly help and estimating the equilibrium spot exchange rates, whichcould help companies in reducing the price gap. The help of parity models companies are mainlyable to test the correctness of the spot rate for increasing the significance of its trading strategy.
3INTERNATIONAL FINANCEThis could eventually help in reducing the currency overvaluation and undervaluation byadopting adequate long or short strategy. Arize, Malindretos and Ghosh (2015) stated thatMultinational companies mainly used purchasing power parity for reducing the gap betweenprices of the products between different countries and maintain the required revenue from theirinvestment. The relevant factors affecting purchasing power parity and its limitations arediscussed below.Factors affecting the Purchasing power parity are depicted as follows.Prices:Inflation is mainly considered one of the major problems for purchasing power, as itdirectly affects the relevant prices of a product in one country and another. Hence, thepurchasing power parity could not be satisfied as the relevant prices in that country is higher,which will increase the valuation and reduce the parity between currency exchange. Moreover,the deflation of the prices could also negatively impact the parity, as prices of the product willnot be adequately valued against home country prices (Bahmani-Oskooee, Chang and Wu 2015).Wages and Employment:The second factor that affect Purchasing power parity is the wages and employmentsection, which directly involves cost factor of a particular product. The relevant increment inwage rate and reduce unemployment sector could eventually increase the cost of production andrelatively reduce purchasing power parity. Hence, the understating of employment couldeventually allow organization to increase the relevant revenue from the country. The increasedincome could also become a relevant factor for purchasing power parity.
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