Notes on International Finance

| the monetary unit assumption is that in the long run, the dollar is stable it does not lose its purchasing power. this assumption allows the accountant to add the cost of a parcel of land purchased in 2013 to the cost of land purchased in 1956. for example, if two acre parcel cost the company 20,000 in 1956 and in 1023 a two acre parceladjacent to the original parcel is ourchased for a cost of 800000 the accountant will add the 800000 ti the land account and will report the land aoounts balance of 820000 on the companys balance sheet. to say that the purchasing power of the dollar has not changed from 1956 to 2013 is quite stretch however, the assumption is that the purchasing power of the dollar has not changed.

· What happens when there is a surplus of imports brought into the U.S.? Cite a specific example of a product with an import surplus, and the impact that has on the U.S. businesses and consumers involved. When there is a surplus of imports brought into the U.S. it means that the price of the product(s) will drop. U.S. companies that are competing with the Chinese made products will suffer from price drops of the goods. With consumers it will benefits the consumer with the lower price on goods. Large screen LCD/HDTV is a good example. Since the recession there has been a surplus of large screen HDTV. Not many people can afford or buy them since the prices were high. Now large screen LCD/HDTV is much cheaper than what it was 4 years ago.

Changes in exchange rates are the result of changes in demand and supply factors for goods and services, such as changes in tastes, relative incomes, and relative prices. Under a flexible-rate policy, all domestic prices are linked with foreign prices. Any change in the exchange rate automatically alters the prices of all foreign goods to domestic goods. The price change alters the relative attractiveness of imports and exports and maintains equilibrium in each trading partner's balance of

One important determinant of a country 's exchange rate in the long term is whether it has a higher or lower inflation rate than its trading partners. The theory of purchasing power parity (PPP) suggests that the exchange rate between two countries will adjust to ensure that purchasing power is equalised in both countries. If a country 's inflation rate is persistently higher than that its trading partners, its trade-weighted exchange rate will tend to depreciate to prevent a progressive loss of competitiveness over time. In addition, political events can also impact the exchange rate, as seen with the ‘Malcolm Turnbull effect’ which lifted the Australian dollar. The Australian dollar, at US70.68c broke US71c in overnight trade after Turnbull discussed the need for economic reforms to counteract "challenges" facing the slowing local economy. Shortly after Mr Turnbull was confirmed as the victor against Prime Minister Tony Abbott, the dollar additionally rose one-third of a cent.

C. Security returns are about as equally correlated across countries as they are within a county

Dating back to the XVI century, the theory of purchasing power parity are developed and studied since then in Spain. However, this theory of PPP attracts the scholars till the XX century due to the contribution of a Swedish scholar Gustav Cassel in 1910s (Taylor, 2006). Cassel presented PPP theory using an equivalent term “theoretical rate of exchange” three years ago before he first defined the term PPP and place it into a systematic framework. Additionally, Cassel is also the first person who tested PPP empirically. The cumulative CPI inflation rates of different countries are suggested to be calculated and used to obtain the most effective exchange rate by Cassel to maintain the parity of purchasing

September to November took a huge hit daily on different foreign exchange markets with very volatile market. Government control had a very complex impact on the currency values and continues to do so, leading investors to tread lightly. As the stabilization of growth to support commodity prices has quite improved in the first quarter of 2017. It leads a favorable exposure of commodity producing countries and currencies – which increases the purchasing power measured by the amount of goods that can be purchases with the units of money. The differences in currencies and commodities show that countries do not fall under absolute purchasing power parity and clearly shows that this does not hold in the real-time situations. Absolute purchasing power believes that two countries are completely identical and share the law of one price, meaning that the good is the same price across all countries. Relative purchasing power acknowledges all of the market imperfections that our country is currently enduing and adjusts to the difference in inflation rates so that relative purchasing power can remain unaffected. Currencies, commodities, and inflation are all important factors of the current emerging markets and will continue to change the fluctuations of the market. If the commodity prices continue to improve, it may lead to a more kind market and maybe even leading the Mexican Peso as an attractive investment. Only time will tell where the market takes us, as the United States is faced with administration changes and confused

The main concept of the article is to explain why the New International Financial Architecture (NIFA) was created and who is being benefited from this approach. The discussion begins with an examination of the power structures of the global political economy by focusing on the continued dominance of the USA. The article presents the contradictory relations between USA and global finance will be explored so as to shed more critical light on the NIFA. This article critically examines the NIFA by linking its institutional components to the larger contradictions of the capitalist inter-state system. A contradiction is the constant promotion of financial liberalization in emerging

a. The dollar is presently weak and is expected to strengthen over time. These expectations affect the tendency of U.S investors to invest in foreign securities because the value of U.S dollar decrease will lead to the U.S company get less profit and earn less money. Consequently, U.S companies will pay fewer dividends for investors who invest in these companies. So, investors will tend to invest in foreign securities where they can get higher dividend. On the other hand, a weak currency can reduce unemployment but maybe it can lead to high inflation, and simultaneously it may reduce U.S imports and boost U.S exports or buy more goods than it sells abroad (imports exceed exports). Another thing, in the long run, trade deficits

On September 23, 2017 Naomi and I waited outside of Coffman Memorial Union to board bus 122, transferred to bus 22, and then 21 before arriving to our destination: Midtown Global Market Exchange. This cutting-edge building is located on East Lake St., Minneapolis. Before entering the building, I noticed how this farmer’s market was inside of a building instead of outside, and it appeared that the Global Market Exchange portrayed a more high-quality grocery store instead of a typical farmer’s market such as, Mill’s City. However, once I entered the building I immediately discovered how the colorful energy created a vibe of diversity to welcome its customers. With the vendors facing each other, and every product laying out on neat displays it wasn’t difficult to notice how much small details like hooks hanging from the pens of the vendors presented products like, multi-colored African clothing or hand-sewn Hmong purses made locally in Minnesota. Nonetheless, I enjoyed how surprising the Global Market Exchange is definitely catering to every ethnicity, and cultures by providing varying products for all customers from different backgrounds.

Currencies are traded like any commodity and sometimes they are over or undervalued in different countries. If the common exchange rate was used, a distorted picture of comparable living standards would be the result. Therefore, PPP is used to correct the distortions caused by over or undervalued currencies.

Michael H. Moffet, et al in "Fundamentals of Multinational Finance" say that the PPP is not particularly helpful in determining what the spot rate is today, but that the relative change in prices between countries over a period of time determines the change in exchange rates. Moreover, if the spot rate between 2 countries starts in equilibrium, any change in the differential rate of inflation between them tends to be offset over the long run by an equal but opposite change in the spot rate.

In this paper, I will only focus on discussing the Purchasing Power Parity (PPP) and I will divide this paper into four sections. In section 1, I will come up with the definition of PPP and other theories behind it. For section 2, I will briefly introduce the absolute PPP and relative PPP and empirical evidence on PPP. Section 3 explains empirical test of PPP in practice and the problem of PPP. For the last section, there are conclusion and remarks.

The aim of this report is going to analyse the importance of forecasting future exchange rates and the relationship of Purchase Power Parity. Also is going to test if this is even possible by applying simple theory of the International Finance statistics. For many economists, governments and investors is very important the forecasting of exchange rate in order to organise their next strategical movements in order to invest money in a country in order to diminish the risks and increase the returns. By saying forecast future exchange rate is when we are able to predict the change in the exchange rates between two countries. Purchase Power Parity (PPP)

In an ever changing foreign exchange market countries and corporations were searching for a system that could help reduce the risk involved while handling foreign exchange situations. With the demise of the Bankhaus Herstatt in 1974 a system that could protect against the risk of FX settlements was in dire need. The Bank for International Settlement developed the Continuous Linked Settlement (CLS) in 2002. The group would provide the members associated with them the allowance to use the foreign exchange market as a national payment system.