If the theorys of purchasing power parity and international
fisher effect hold is there any reasons international companies
should hedge?
In other word is there exchange rate risk for companies if
purchasing power parity and the international fisher effect were
true?
Law of one price and Purchasing-power-parity
theory
We employ a theory called the Purchasing Power Parity to explain
the movement of nominal exchange rate. The PPP theory is built on
the Law of One Price, which states that a currency must have the
same purchasing power in all countries. Based one this assumption,
PPP theory establishes the functional relationship between Nominal
exchange rate, domestic price level, and foreign price level.
Suppose you are provided with the following information: 1) P...
Fortunately, the theories of both purchasing power parity
and interest rate parity do not have any problems. Do you
agree with this statement? In 300 words, defend your position.
7.Relative purchasing power parity
applications
a.Define relative purchasing power parity
b.Show the relationship between
relative purchasing power parity and the inflation rates in the two
countries for which the spot exchange rate is also available.
c.What is the difference between
absolute and relative purchasing power parity?
Purchasing Power Parity (PPP)
Theory
[10 points]
What is the equation for absolute PPP?
What is the evidence for and against it? Draw a diagram to show
whether it is valid.
What is the equation for relative PPP?
Recall the theories of purchasing power parity (PPP)
and international Fisher effect (IFE) in Chapter 8. If these
theories were used to forecast exchange rates, which techniques
would they be classified? Why?