Study Document
Option Pricing and PPP Deviation Term Paper
Pages:2 (525 words)
Sources:2
Subject:Mathematics
Topic:Break Even Analysis
Document Type:Term Paper
Document:#38465991
deviations from purchasing power parity for countries' competitive positions in the world markets?
Per a Wisconsin University study, there are two major effects. The first is a "real barriers" effect and the other is a sticky-consumer-price issue. The first of those two can cause deadweight welfare losses. However, that could be counteracted by fixed exchange rates. However, this can be flummoxed by a lack of pass-through along the entire market due to breakdowns in passing along the price fixation. Also important to keep in mind is that deviations can be both regional within one country or international between a number of countries. However, fixed exchange rates are often eschewed in favor of a floating one as even though there will be more efficiency in some ways, new issues will be created due to the artificial influence exerted on the market. A country deviating from its PPP levels and speclaizations can upset the proverbial apple cart, so to speak. For example, the ethanol-producing activities of the United States had the effect of raising prices for corn even for those that were not in the gas-producing business like people seeking and dealing corn tortillas and other products in Mexico. When the market is shifted in such a seismic way, the ripples are easy to see early and often (Engel & Rogers, 2001).
Assume the spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the…
Sample Source(s) Used
References
Engel, C., & Rogers, J.H. (2001). Deviations from purchasing power parity: causes and welfare costs. Journal of International Economics, 55(1), 29-57.
Investopedia. (2014, September 25). Spot Market Calculations - CFA Level 1 | Investopedia. Investopedia. Retrieved September 25, 2014, from http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/spot-market.asp
Related Documents
Study Document
Management and Decision Sciences From
76). As automation increasingly assumes the more mundane and routine aspects of work of all types, Drucker was visionary in his assessment of how decisions would be made in the years to come. "In the future," said Drucker, "it was possible that all employment would be managerial in nature, and we would then have progressed from a society of labor to a society of management" (Witzel, p. 76). The
Study Document
Economics and Finance
Exchange Rate Volatility and International Trade The foreign exchange rate market offers investors a chance to make a considerably larger return on their investment than any other market in the world. However, along with these potential gains comes a considerable risk as well. Foreign exchange rates are extremely volatile and dependent on many variables. Understanding the factors that influence foreign exchange rates can mean the difference between profit and loss for
Study Document
SLP and International Business Analysis
political scenario illustrated that governments all over the globe are making their immigration rules more stringent because of the rise in terrorism; the implication of this phenomenon is a decrease in international traveling, which endangers continuance of a number of airlines, including Nigeria's Arik Air (Eze, 2010). Hofstede's power distance dimension denotes the degree to which unequal distribution of power is anticipated and accepted by the lower ranking members
Study Document
Greece's Debt Crisis: Causes and
This flaw creates an incentive for firms to accumulate large sums of unpaid taxes over several years and then enter into negotiations with the tax authorities in order to remit small proportion of taxes. This flaw has been a constant feature of all tax reforms and thus makes the whole tax system less credible and more prone to abuse. Following the inadequate government intervention, it is clear that, in 2009,