Explaining why Purchasing Power Parity and Internal Fishers Effect in theory makes derivates unnecessary

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
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INTERNATIONAL FINANCIAL MANAGEMENT
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Table of Contents
Explaining why Purchasing Power Parity and Internal Fishers Effect in theory makes
derivates unnecessary:................................................................................................................2
Reference and Bibliography:......................................................................................................6

INTERNATIONAL FINANCIAL MANAGEMENT
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Explaining why Purchasing Power Parity and Internal Fishers Effect in theory makes
derivates unnecessary:
The overall evaluation mainly indicates that Purchasing Power Parity and Internal
Fishers Effect in theory mainly reduces the use of derivatives, which is currently been used
by investor to hedge their current conversions. In addition, the Purchasing Power Parity
puzzle can be identified, as the overall short-term volatility of real exchange rates, which is
conducted in the currency market. Moreover, the Purchasing Power Parity relevantly involves
variants, which helps in depicting the actual currency value of a country. Moreover, the
approach ‘Law of One Price’ can be used to derive the overall Purchasing Power Parity
composition of countries currency. The measuring of law of one price relevantly uses the
overall currency valuation of a country and the foreign country to detect the product value in
different countries. This evaluation relevantly helps in determining the price of a product in
one home country and other countries, where the product is being sold. However, the ‘Law of
One Price’ variants directly supports the measure of Purchasing Power Parity, which directly
helps in detecting the overall prices of a product. The reliance of currency valuation for
Purchasing Power Parity might hamper the changes in currency conversion. In this context,
Ortiz and Monge (2015) stated that Purchasing Power Parity mainly helps in deriving the
same prices of a product on different countries and currencies. On the other hand, Lothian
(2016) criticises that Purchasing Power Parity is mainly based on theoretical conditions,
which does not include the expenses of transportation and currency conversions charges.
Therefore, it could be stated that based on the perception of cost the overall Purchasing
Power Parity make derivatives unnecessary only in theory.
According to Rogoff (1996), purchasing power parity puzzle relevantly indicates the
problems that might affect prices of a product. The article indicates that the purchasing power