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DYNAMICS:
GLOBAL FINANCIAL SYSTEM INTERNATIONAL MONETARY FUND BALANCE OF PAYMENTS
The worldwide framework of
A set of intentionally agreed rules, A country is the record of all
legal agreements, institutions,
conventions and supporting institutions economic transactions between
and both formal and
that facilitate international trade. resident of the country and the rest of
informal economic actors.
the world.
The exchange rate at the time she bought the camera was €1 = £0.72.
Jessica went to Morocco and bought the same camera for 3,018
Moroccan dirham.
Find out the purchased the camera for the lower price and write down
the difference in the prices.
KAREN’S CAMERA
Exchange rate: €1 = £0.72
Using this exchange rate, multiply euros by 0.72 to calculate pounds:
€320 x 0.72 = £230.40
JESSICA’S CAMERA
Exchange rate: £1= 15.09 Moroccan dirham.
Using this exchange rate, divide dirham by 15.09 to calculate pounds:
3,018 / 15.09 = £200
P = EP^F
PURCHASING POWER PARITY (PPP)
where:
P = EP^F
= $.67 x 30
= $20
REASONS WHY PPP DOES NOT HOLD:
Goods are not identical
Information is costly
Shipping costs affect prices
Tariffs and legal restrictions on trade