A Guide to the Purchasing Power Parity Theory

A Guide to the Purchasing Power Parity Theory Purchasing-power parity (PPP) is an economic concept that states that the  real exchange rate  between domestic and foreign goods is equal to one, though it does not mean that the  nominal exchange rates  are constant or equal to one.   Put another way, PPP supports the idea that identical items in different countries should have the same real prices in another, that a person who purchases an item domestically should be able to sell it in another country and have no money left over. This means that the amount of purchasing power that a consumer has does not depend on what currency with which he or she is making purchases. The Dictionary of Economics defines the PPP theory as one that states that the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that  rate of exchange  are equivalent. Understanding Purchasing-Power Parity in Practice To better understand how this concept would apply to real-world economies, look at the United States dollar versus the Japanese yen. Say, for example, that one U.S. dollar (USD) can buy about 80 Japanese yen (JPY). While that would make it appear that United States citizens have less purchasing power, the PPP theory implies that there is an interaction between nominal prices and nominal exchange rates so that, for example, items in the United States that sell for one dollar would sell for 80 yen in Japan, which is a concept known as the real exchange rate. Take a look at another example. First, suppose that one USD is currently selling for 10 Mexican pesos (MXN) on the exchange rate market. In the United States, wooden baseball bats sell for $40 while in Mexico they sell for 150 pesos. Since the exchange rate is one to 10, then the $40 USD bat would only cost $15 USD if bought in Mexico. Theres an advantage to purchasing the bat in Mexico, so consumers are much better off going to Mexico to buy their bats. If consumers decide to do this, we should expect to see three things happen: American consumers desire Mexican Pesos to purchase baseball bats in Mexico. So they go to an  exchange rate  office and sell their American Dollars and buy Mexican Pesos, and this will cause the Mexican Peso to become more valuable relative to the U.S. Dollar.The demand for baseball bats sold in the United States decreases, so the price American retailers charge goes down.The demand for baseball bats sold in Mexico increases, so the price Mexican retailers charge goes up. Eventually, these three factors should cause the exchange rates and the prices in the two countries to change such that we have purchasing power parity. If the U.S. Dollar declines in value to a one to eight ratio to Mexican pesos, the price of baseball bats in the United States goes down to $30 each, and the price of baseball bats in Mexico goes up to 240 pesos each, we will have purchasing power parity. This is because a consumer can spend $30 in the United States for a baseball bat, or he can take his $30, exchange it for 240 pesos and buy a baseball bat in Mexico and be no better off. Purchasing Power Parity and the Long Run Purchasing-power parity theory tells us that price differentials between countries are not sustainable in the long run as market forces will equalize prices between countries and change exchange rates in doing so. You might think that my example of consumers crossing the border to buy baseball bats is unrealistic as the expense of the longer trip would wipe out any savings you get from buying the bat for a lower price. However, it is not unrealistic to imagine an individual or company buying hundreds or thousands of the bats in Mexico then shipping them to the United States for sale. It is also not unrealistic to imagine a store like Walmart purchasing bats from the lower cost manufacturer in Mexico instead of the higher cost manufacturer in Mexico. In the long run, having different prices in the United States and Mexico is not sustainable because an individual or company will be able to gain an arbitrage profit by buying the good cheaply in one market and selling it for a higher price in the other market. Since the price for any one good should be equal across markets, the price for any combination or basket of goods should be equalized. Thats the theory, but it doesnt always work in practice.   How Purchasing-Power Parity is Flawed in Real Economies Despite its intuitive appeal, purchasing-power parity does not generally hold in practice because PPP relies on the presence of arbitrage opportunities - opportunities to  buy items at a low price in one place and sell them at a higher price in another - to bring prices together in different countries. Ideally, as a result, prices would converge because the buying activity would push prices in one country up and the selling activity would push prices in the other country down. In reality, there are various transaction costs and barriers to trade that limit the ability to make prices converge via market forces. For example, its unclear how one would exploit arbitrage opportunities for services across different geographies, since its often difficult, if not impossible, to transport services without additional costs from one place to another. Nevertheless, purchasing-power parity is an important concept to consider as a baseline theoretical scenario, and, even though purchasing-power parity might not hold perfectly in practice, the intuition behind it does place practical limits on how much real prices can diverge across countries. Limiting Factors to Arbitrage Opportunities Anything which limits the free trade of goods will limit the opportunities people have in taking advantage of these arbitrage opportunities. A few of the larger limits are: Import and Export Restrictions: Restrictions such as quotas,  tariffs, and laws will make it difficult to buy goods in one market and sell them in another. If there is a 300% tax on imported baseball bats, then in our second example it is no longer profitable to buy the bat in Mexico instead of the United States. The U.S. could also pass a law  making  it illegal to import baseball bats. The effect of quotas and tariffs were covered in more detail in Why Are Tariffs Preferable to Quotas?.Travel Costs: If it is costly to transport goods from one market to another, we would expect to see a difference in prices in the two markets. This even happens in places that use the same currency; for  instance, the price of goods is lower in Canadian cities such as Toronto and Edmonton than it is in more remote parts of Canada such as Nunavut.Perishable Goods: It may be simply physically impossible to transfer goods from one market to another. There may be a place which sells cheap sandwic hes in New York City, but that doesnt help me if I am living in San Francisco. Of course, this effect is mitigated by the fact that many of the ingredients used in making the sandwiches are transportable, so we would expect that sandwich makers in New York and San Francisco should have similar material costs. This is the basis  of  the Economists famous Big Mac Index, which is detailed in their must-read article McCurrencies. Location: You cannot buy a piece of property in Des Moines and move it to Boston. Because of that real-estate prices in markets can vary wildly. Since the price of land is not the same everywhere, we would expect this to have an impact on prices, as retailers in Boston have higher expenses than retailers in Des Moines. So while purchasing power parity theory helps us understand exchange rate differentials, exchange rates do not always converge in the long run the way PPP theory predicts.

Hovey and Beard Company Case Study Example | Topics and Well Written Essays - 750 words

Hovey and Beard Company - Case Study Example The Hovey and Beard Company Case presents us with a job design of a painting process which demonstrates errors in the design of the job by engineers which resulted into inevitable problems at work (John, Robert and Michael, 2010). The fact that the hooks were designed to move in a continuous array in front of the painters without a method of regulating them indicates problems with job design. However it can be argued that the calculation of the time that each painter was given before the hook would fall out of reach shows that the engineers were aimed at ensuring that the job was designed well to meet the demands of the job. In this scenario, trainee painters are expected to make more errors especially with the timing of the hooks and thus decreasing their productivity. The reinforcement theory is used within the Hovey and Beard Company Case as illustrated by the training bonus that the trainee painters are given. The aim of this bonus is to enable the trainee to meet the gap in prod uctivity which would result from lack of skills and experience in the job. The job was designed in a way that the trainees were expected to be skills at the end of six months when the training bonus was withdrawn (John, Robert and Michael, 2010). The contribution of the reinforcement theory to job performance is to motivate employees to improve their performance in the job. In the Hovey and Beard Company Case, the training bonus was reduced gradually as a way of reinforcing the motivation of the painters to improve their performance so that by the end of the six months they were able to perform normally without mistakes and thus enable the efficiency of the job to be enhanced. The problems that were observed in the second month of the training in the Hovey and Beard Case can be attributed to poor reinforcement and thus less motivation by the supervisors. The job design would have been wrong leading to many of the hooks falling out of the range of the painter (John, Robert and Michae l, 2010). However, it can be argued that the engineers increased the rate at which the hooks moved because they expected the efficiency of the painters to have improved by the second month. The complaints of the painters that the hooks were too fast would also demonstrate that the supervisors expected unrealistic improvement of performance by the painters in the second month. Question 2 The performance diagnosis model is a tool that is used to define problems that result in the performance of tasks of a specific job. The diagnosis performance model aims at identifying the desired levels of employee performance in the execution of various processes of a job. Secondly, the model is important in the identification, specification and implementation of the most appropriate intervention of improving the employee performance so that the problems at the work place are solved with effectiveness (Stahl, 1997). In the Hovey and Beard Company case, some employees quit because of the high expect ations of performance which they would not cope with. The replacement of the employees with new ones caused even worse problems. This illustrates inappropriate application of the performance diagnostic model by the supervisors. The supervisors replaced the employees with new ones because they thought that it was the most appropriate intervention for the problem. Their failure in the application of the performance diagnostic tool is due to their inability to clearly identify the

Accounting theory practice Essay Example | Topics and Well Written Essays - 2000 words

Accounting theory practice - Essay Example This revised IAS 1 is applicable to all entities whether those are profit oriented or not- for profit entities. ‘Not- for profits entities in both the public and private sectors can apply this standard, however they may need to change the description used for particular line items within their financial statements and for the financial statements themselves. This standard applies to those entities that present consolidated financial statements and those that present financial statements as defined in IAS 27: Consolidated and Separate Financial Statements. It does not apply to the structure and contents of condensed interim financial statements prepared in accordance with IAS 34: Interim Financial Reporting.’ (Barry and Jermakowicz, page 22)2. In other words IAS 1 is applicable to all financial statements that cater general purpose needs. ‘General purpose financial statements are those intended to meet the needs of users who are not in a position to demand reports t ailored to meet their specific information needs. They include statements presented separately or those within another public document, such as annual report or prospectus.’(David Alexander and Simon Archer, 3.04)3 IAS 1 revised in September 2007, issued by International Accounting Standard Board (IASB), is the first of the series of expected revisions on the standard. While issuing the revised IAS 1, IASB (2007)4 stated in the press release that ‘the changes made are to require information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable the readers to analyze changes in a company’s equity resulting from transactions with owners (such as dividend and share purchase) separately from non- owner changes (such as transactions with third parties)’. This indicates that the basic objective of changes is to present each financial

Finance, planning and budgeting of construction of houses in urban Essay

Finance, planning and budgeting of construction of houses in urban areas - Essay Example Furthermore, it represents my own opinions and not necessarily those of the University. Signed __________________ Date _________________ Abstract In this study we try to explore the concept of â€Å"Finance, planning and budgeting of construction of houses in urban areas† in a holistic context. The main focus of the research is on â€Å"Construction of the houses† and its relation with â€Å"Urban Areas†. The research also analyzes the difficulties faced by the â€Å"Construction of Houses† and tries to gauge its effect in â€Å"Urban Cities†. This study focuses on the planning and budgeting for the construction of houses in the urban cities. The major requirements and the barriers are also defined and discussed. Table of Contents Acknowledgement ii DECLARATION iii Abstract iv CHAPTER 1: INTRODUCTION 1 Background of the research 1 Problem Statement 1 Aims and Objectives 1 Restrains Affecting the Thesis 2 Ethical Concern 2 CHAPTER 2: LITERATURE REVIE W 4 Sustainable urban development 4 Roadmap for sustainable development 5 Documentation for Planning and Integrated 7 Planning and Building Control 8 Sections of the work 10 Personal and Financial Programs 13 Main Controls 15 New Urbanism 17 CHAPTER 3: METHODOLOGY 19 Research Method 20 Research Instruments 20 Sampling 20 CHAPTER 4: DISCUSSION AND ANALYSIS 21 Construction 21 Residential Houses: Constructional procedure 23 Quality features of the process 24 Quality features of the product 25 Aims and Rationale for Budgeting 26 Principles of Change with Impact on Budgeting 27 Leadership Challenges in Budgeting 27 Space Personalization 936w 28 Decorating Trends 28 Building a Home Construction Budget 550w 31 Statistics and Housing 33 Mortgage Economics 34 Government Policy 36 Housing Boom and Bust 39 Upcoming Research Prospects 42 CHAPTER 5: CONCLUSION 44 Analytical Conclusion 47 BIBLIOGRAPHY 48 Heather, S.  and  Bachelor, L. (2007) Housing boom over' as UK bank chaos grows, the obse rver (sep 2007) from http://www.guardian.co.uk/money/2007/sep/16/houseprices.business 53 APPENDIX 59 Budgeting Cycle 59 CHAPTER 1: INTRODUCTION Background of the research Urban development in this model is the possibility of a given population, meeting basic needs: food, health, education, employment, housing, culture. Urban development is to create a habitat in a harmonious environment, which respects the human rights of individuals, there is no overcrowding, abandoned children, beggars, pollution, crime or all these activities are minimal, that there is a reasonable and balance level of environment that respect the dignity of human ecology, safety and welfare. This can be achieved based on aligning the strategic planning of public interest and private interest. Urban development is sustainable with design and implementation of urban plans to support the ecological environment in the short, medium and long term, fulfilling the principles of equity, decentralism, provision of basic services throughout the country, generating jobs and consultation with social partners for development. Problem Statement One of the reasons for the urban chaos is that both authorities and citizens never respected urban planning. Urban law is an essential element of planning. To date a large number of standards that guide local development does not fully comply or abide with it. The law as part of the superstructure has been shown to be an instrument of change and renewal. Aims and Objectiv

The Controversies in Juvenile Justice Essay Example for Free

The Controversies in Juvenile Justice Essay Each year, thousands of adolescents in the United States have been tried and sentenced to life in prison without parole, a punishment that has many of its own controversies. Debates are held on whether or not these kids should be tried and sentenced in the same way that adults are tried and sentenced. Many justices say that since children are emotionally, physically and mentally different than adults, they should never be tried in the same way that adults are. Other justices argue that if these children are capable of committing murder, they are also capable of undergoing the same punishment that an adult would undergo. However, the Supreme Court has ruled that sentencing juveniles to life in prison without parole is unconstitutional because it violates the ban on cruel and unusual punishment. Adolescents deserve to be tried differently simply because of the fact that they are not adults, and the legal system shouldn’t treat them as such. Furthermore, juveniles should not be sentenced to life in prison without parole because they have not yet reached their full maturity, they are capable of rehabilitation, and if they were sentenced as adults, they should be given the same privileges as adults in the first place. Adolescence is defined as a transitional period in human development and maturity. This is a time where teenagers are rapidly undergoing change, specifically in the brain. Paul Thompson, a writer for The Sacramento Bee, includes in one of his articles that there is a â€Å"massive loss of brain tissue that occurs in the teenage years.† This explains why teenagers often act with impulsive and erratic behavior. This brain tissue is gray matter, which aids in regulating self-control and impulses, and it is being purged at fast rates. Thompson goes on to say, â€Å"These Nailling 2  frontal lobes, which inhibit our violent passions, rash actions, and regulate our emotions, are vastly immature throughout the teenage years.† There are obviously huge differences in the maturity levels of an adolescent and an  adult; therefore it is unfair to sentence an immature adolescent to life in prison without parole because he or she will never be able to reach that maturity level that adults are already at. Regardless of this type of tissue loss and brain developm ent in general, teens should still be held accountable for the crimes they commit, just not to the same extent or in the same way that adults are. Rehabilitation is perhaps the most hopeful form of change that a juvenile could be granted. Because of the fact that they are so young, it is fair to say that all adolescents have the capacity of changing their bad habits and their lifestyles. Gail Garinger, a juvenile court judge and the state of Massachusetts’ child advocate, writes in the New York Times that children are â€Å"promising candidates for rehabilitation.† As a child, to be sentenced to life in prison without parole is equivalent to taking away any form of hope for them to change, which most of them are capable of if they could all just be given a chance. Garinger also states that adolescents’ â€Å"characters are still in formation.† She means that because of this formation that is taking place in the teenage years, this is the best time for them to be offered a chance to rehabilitate themselves before it is too late and they are locked up in prison for their entire life. It is one thing to sentence an adult to life without parole, but to give that same verdict to a child is simply unjust. Many juveniles across the country are unfairly being tried as adults. These kids, who clearly have not yet reached adulthood, have not experienced any type of freedom that grown-ups have, are being condemned and sentenced to a life in prison without parole. Marjie Lundstrom, a columnist for The Sacramento Bee, covers the controversial topic of juveniles who are convicted as adults in their court cases. She implies that it is unfair for a child to be tried as Nailling 3  an adult and to be held by the same standards as an adult would be in court. In one of her articles, she points out how kids â€Å"can’t smoke, or drink, or go to R movies†¦can’t vote, have curfews†¦Ã¢â‚¬  yet, many of these kids, who all have these restrictions, are being treated like they are adults who have none of these restrictions. What’s the point of having a juvenile system in the first place if kids are going to be punished the same exact way as adults are? Lundstrom says, â€Å"Kids are different. Their reasoning is not  fully developed. They are not adults.† It cannot be made any clearer than that, the fact that they are only kids, and they have the right to be treated differently than adults. There is a huge gap between the age of seventeen and eighteen. Between a child and an adult. Between immaturity and maturity. This gap is a disparity that the juvenile system is entitled to recognize. It is crucial to understand that juveniles should not be tried as adults and sentenced to life in prison without parole because these adolescents haven’t yet reached their full maturity, because they are capable of rehabilitation, and because it is unjust to be tried as an adult but not be allowed the same legal privileges that all adults have. Works Cited Thompson, Paul. Startling Finds on Teenage Brains. The Sacramento Bee 25 May 2001: n. pag. Print. Garinger, Gail. Juveniles Dont Deserve Life Sentences. The New York Times 14 Mar. 2012: n. pag. Print. Lundstrom, Marjie. Kids Are Kids Until They Commit Crimes. The Sacramento Bee 1 Mar. 2001: n. pag. Print.

Elizabeth Barrett Browning’s The Runaway Slave at Pilgrim’s Point and A

Elizabeth Barrett Browning’s â€Å"The Runaway Slave at Pilgrim’s Point" and "A Castaway" In the early Victorian period, a number of poems were composed which served to highlight a specific troubled spot in society. The poets often wrote for human rights groups and the like in order to convey a message to those members of society who could make a difference, namely, the educated white men. Among these poems is Elizabeth Barrett Browning’s â€Å"The Runaway Slave at Pilgrim’s Point.† This piece deals with a female slave who has killed her newborn son and fled to Pilgrim’s Point, where she speaks of her feelings leading up to the present moment. Another poem, which can be placed in comparison to Browning’s, is Augusta Webster’s â€Å"A Castaway,† a dramatic monologue of a prostitute who struggles to justify her lifestyle both to herself and to her reader. In each of these works, the female speaker has acted in a morally questionable manner that initially appears condemnable. However, the issue is not clearly defined; many q uestions arise as to the motives behind and the circumstances surrounding each woman’s behavior. Do the choices made assert the freedom of each woman? That is to say, is the woman to be held entirely accountable for her actions based on the idea that she has freely chosen to carry them out? Upon careful reading of the two poems in question, the answer becomes much clearer. The choices made by the castaway and the runaway slave are in reality not the uninhibited decisions they at first appear. Restricted on all sides by their respective society’s powerful men, each woman faces very limited options. In each of the poems, the idea of choice (and subsequently, the question of its validity) emerges in the areas of materna... ...both â€Å"The Runaway Slave at Pilgrim’s Point† and â€Å"A Castaway,† the women make choices based on only a few limited options, which can be seen in their approaches to maternity, God, and freedom. Generally speaking, each woman is held accountable for her actions, but the issues have actually stemmed from larger scale problems. Even the castaway, a white woman, has no real freedom in deciding how to live her life. She chooses prostitution out of a need to support herself while still maintaining individuality. As for the runaway slave, she has run away seeking freedom, but finds none and will be killed for her insolence. Many of the factors leading to each woman’s decisions are based on the outside influences of her world. Therefore, neither woman can be entirely blamed for the bad choices she has made; she could not choose better because a better choice does not exist.

CIPD Notes Essay

Terms of Reference To investigate how an HR practitioner within East Surrey College (ESC) should ensure that they deliver timely and effective HR services to meet user’s needs. The report was requested by Charles Sleet, HR Director, on 11/11/2013 to be presented on 14/01/2014. Procedure 1. Understanding different customer needs in HR. 2. Communicating effectively in HR. 3. Building and maintaining effective service in HR. 1. Two HR colleagues were interviewed in order to determine who the 3 main customers of the HR department were. Furthermore, requests and enquiries that came through to HR were recorded via the same HR colleagues to identify the main needs of the customers during a period of three weeks from 13th November to 4th December. The way in which these needs are prioritised was recorded. 2. A questionnaire was issued to 20 members of staff to discover the most effective communication method. Staff members were chosen through random sampling. 3. An interview was held with the HR Business Partner to gain insight into the main areas of effective service delivery and how it is constructed. Findings 1. Understanding Customers needs After interviews with the two HR Practitioners, the three main customers of the HR Department were identified as follows: Type of customer Key needs Candidates for interview Gaining information on the outcome of their interview A swift pre-employment check process, ensuring a quick start into a new job Heads of Department (HoD) Absence levels of employees Monitoring online training completion Employees Requesting a copy of their own CPD log – these are updated and kept on HR records Enquiring about upcoming training events The HR practitioners highlighted that the needs of different customers may conflict. An example could be a HoD enquiring about the completion of a member of staffs online training courses conflicting with an enquiry coming in at the same time of a staff member urgently trying to find out when the next ‘Teaching and Learning’ forum is due to take place. Maximum service delivery has to be initiated with regards to these needs – therefore the HR practitioners advised on the ways these needs are prioritised. These prioritise are; Timescales – some requests may have longer timescales than others. These timescales therefore contribute to the importance of the arisen needs. Consequence and risk to the company – discovering the consequences and risks to the company helps prioritise incoming needs and enquiries. For example, it would be seen as more important to provide a HoD with an absence level report for their department than it would to advise a member of staff on their current CPD record. 2. Methods of communication After analysing feedback from the completed questionnaires, highlighted below are 3 methods of communication appropriate to employees at ESC at different levels: Communication method Advantages Disadvantages Face-to-face Immediate feedback Gives a personal touch, body language can be read Can use facial expressions to enhance communication Can be lengthy if certain attendees are unavailable to meet No chance to go away and think about an answer No privacy as someone could overhear Email Can take time over response Large amounts of information can be sent e.g. attachments Able to pass on information without interrupting someone Lack of body language and tone Impersonal Emails can be misinterpreted Phone Immediate interaction with someone far away More personal than an email Ability to transfer calls across locations/conference calls Can be disrupted by hindrance of poor signal Lots of details over the phone can be hard to record 3. The key components of effective HR Service Delivery Delivering service on time – SLAs need to be SMART, in particular they should be realistic and achievable. For example, in the HR Department at ESC HR practitioners aim employ a new member of staff in, at most, 4 weeks from the  date they were verbally offered the role. This is important as it earns the department respect and often means customers will look to reply in the same, efficient way. Delivering service on budget – It is important to ensure that you keep within budget but still deliver a high level of service as going over budget can incur costs financially. Costs that need rectifying mean that other areas would then be restricted to an even lower budget. Dealing with difficult customers – Identify the problem, stay calm, and understand how it can be resolved. Handing and resolving complaints – With the secure SLA in place, the query should be met in a timely way to elude complaints. Any complaints that do arise should be dealt with in an equally timely and professional way . Keeping customers in the loop with updates on progress is key. Conclusions 1. ESC use all 3 methods identified (phone, email, face-to-face) to communicate to employees at all levels, making sure the correct method is used 2. Consequences and timescales were key as methods used to prioritise conflicting needs in the workplace. 3. the HR Business Partner delivers and expresses a high level of service that fits with the four outlined objectives.