Here is the synopsis of our sample research paper on Testing Purchasing Parity Theory. Have the paper e-mailed to you 24/7/365.
Essay / Research Paper Abstract
This 6 page paper looks at the purchasing parity theories and uses annual information from the exchange rates of the Chinese Yuan and the Euro for the years 2000 – 2004 and tests the purchasing parity theories. The paper then considers whether the International Fisher Effect (IFE) could account for any deviations. The bibliography cites 4 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TEtestppt.rtf
Buy This Term Paper »
Unformatted sample text from the term paper:
high inflation there will be an adjustment in the international exchange rates to make up for the apparent loss of value in terms of purchasing power of the currency. Purchasing
parity theories have been examined with a range of different results. If we look at the Euro and the Yuan against the dollar then there is an interesting pattern due
to the nature of the different currencies and the international movements. In terms of purchasing parity there are two main theories; the absolute purchasing power parity
and the relative purchasing power parity. The basis of the theory is that goods or services should be the same in different countries if there were a single or common
currency (Anonymous, 2001). The theory is based on price; the Law of One Price, this is a no arbitrage condition that tells us the price in two different nations should
identical when the currency is converted into that of the comparative nation (Anonymous, 2001). Looking first at Absolute Purchasing Power Parity (or PPP) the spot
exchange rate is determined by relative prices for a collection of similar goods in the different nations (Anonymous, 2001). for example we can look at the price of butter (or
any other good) in the United States and in Europe; * D=US$/?(Euro) * Abiding by this law of one price butter in Europe should be *D = butter price in
the United States. * Therefore D should be equal to the price of butter in the United States/the price of butter in the United Kingdom (Anonymous, 2001).
The well known example that is used to illustrate this point is the comparative price of Big Macs throughout the world. According to this theory they should be the same
...