Power Purchase Parity Essay Example | Topics and Well Written Essays - 3500 words

Power Purchase Parity - Essay Example The conclusion is that this is highly assumptive and neglects other possibilities that control the relative price and exchange rates. Economists argue that the economic benefits of trade between nations in goods, services, and assets are similar to the benefits of trade within a nation. In both cases, trade in goods and services permits greater specialization and efficiency, whereas trade in assets allows financial investors to earn higher returns while providing funds for worthwhile capital projects. However, there is a primary difference between domestic versus international transactions; specifically, trade within a country normally involves a single currency, but trade between nations usually involves dealing in different currencies. There are also subtle and unavoidable concerns when establishing in purchase power parity that exchange rates are only controlled by relative pricing. This theory requires that stabilisation and equivocal trade are inherently continuous, and does not account for cost, policy and specialisation as substitution. Therefore, while purchase power parity holds in some cases, it can not be assumed (as it currently is) to hold in all cases. It will only hold under specific criterion, and not when there is fluctuations in real cost and trade. To understand the founding principles of purchase power parity, a first l... Exchange rates are the cost of one good compared to the price of another across national borders. The exchange rate simply converts the GDPs (Gross Domestic Products) into the same currency units. Even when valued in the same currency unit, the ratios of GDPs in different countries still have to be split into their volume and price components. This is often believed to be controlled by the theory of relative prices, that one product has an equal value to another product in different countries. The law of one price is the founding principle of this theory, explained by the purchase power parity concept. Purchasing power parities (PPP) are rates of currency conversion constructed to account for cross-country variation in prices. The calculation of PPPs is based on pricing a representative basket of goods and services across countries, and weighing this basket with the expenditure patterns prevailing in each of the countries. The PPP conversion rate allows for volume comparisons, i.e. comparisons involving the level of health expenditures in real terms. Exchange Rate The foreign exchange is the act of trading money between nation, where the money takes the same form of the originating country, and monetary assets traded in foreign exchange markets are demand deposits in banks. The exchange rate is specifically the price of one country's money in terms of another country's money, and this is very dependent on the time-value of money (Hallword and McDonald 2000). Foreign exchange quotations are shown as a bid/offer rate. The dollar lies at the heart of foreign exchange dealing, as most transactions involve moving in and out of the dollar. Sterling and currencies which were linked to sterling

GE's Two Decade Transformation Case Study Example | Topics and Well Written Essays - 250 words

GE's Two Decade Transformation - Case Study Example 2. What is Welch’s purpose in the series of initiatives he launched in the late 1980s and early 1990s? What is he trying to achieve in the round of changes he put in motion in that period? Is there a logic or rationale supporting the change process? Welch’s main purpose in the series of initiatives he launched was to ensure that in the next decade, GE would be a number one or number two competitor in the industry (Bartlett 1). This would make GE a unique, highly spirited, and an entrepreneurial enterprise in addition to being profitable, diverse, and with quality leadership and products of their own kind in the world. In the round of changes he puts in motion in that period, he wanted to achieve a productive business with individuals who were focused in implementing change for the success in the business. Ideally, making such a change is logical considering the situation in which the business environment was in. Welch realized that the business had so many who never added value to the business and therefore, went for the restructuring process have a lean and efficient workforce. In order to grow profitably, it is essential that one reduce the expenses or production costs. It is by the same perspective that Welch uses to grow GE profitably despite the critics. He did this through downsizing, destaffing, and delayering to have a lean and effective employee base (Bartlett 3). Indeed the initiatives employed by Welch added substantive value to the business as the business was able to grow its operation profits from $1.6 billion to $2.4 billion and revenues from $27.1 billion to $29.2 billion within four years (1981-1985) (Bartlett 3). Considering Welch’s approach to leading change, I believe it is one of the most efficient approaches as he is able to reduce costs of production and increasing the revenue and profit