1) T he theory of purchasing power parity has 2 different perspectives: we have the absolute form and the relative form. The absolute form states that prices for the same products in two different countries should be equal, when they are calculated on the same currency. The relative form states that the prices for the same products in two different countries will not be the same due to market imperfectations. Assume that we have two countries A and B with respective inflation rates at 0,1% and 16,6% with different currencies. The difference in the inflation rates is 16,5% which means that the country with the lower inflation rate (country A) should appreciate its currency almost 16,5 percent or for country B to depreciate its currency at the same percentage.
National money was converted into gold at the fixed price. In this time, there was unprecedented economic growth with relatively free trade in goods, labor, and capital. A good time for trade if you had money but no one did so it was a kind of lose win, thing more so lose than win though. How did it work, the gold standard was a domestic standard regulating the quantity and growth rate. Because new production of gold would add only a small fraction to the accumulated stock, gold into non-gold money, the gold standard ensured that the money supply.
It was not only the process of original accumulation of capital in the development of capitalism, but the process of promoting extensive exploitation of the west and rapid development of economy. It impelled the gold standard was established which paper currency in exchange for gold. In political aspect, it promoted the way of a California state constitutional convention was convened, a state constitution written and elections held. In addition, it provided the United States with its richest miners, greatest forests and abundant
Most countries were on a gold-exchange standard. The central banks of countries on the gold-exchange standard would convert their currencies not into gold but rather into “gold-exchange” currencies (currencies themselves convertible into gold), in practice often sterling, sometimes the dollar (the reserve
So to counter this world moved on to gold and silver based methodology of paying for commodity but the value of these bases fluctuated a lot on the basis of demand and supply. Because of its many advantages money was eventually created for facilitating trade. People eventually accepted money as media of payment but there was an issue that each country issued its own currency, which hampered international trading as purchasing power of each currency differed considerably and was dependent on much currency the country issued. It was just before the World War II 700 representative’s allied nations met up in Bretton Wood, New Hampshire to debate over what would be called Bretton Wood system of international monetary management. In this US dollar replaced the Gold standard and it was the only currency to be backed by the gold which in future lead to the failure of this system as US Treasury did not have sufficient gold to cover all the currency being traded in the world.
According to him, money is not a real form of wealth but a vehicle through which it can be acquired. He was the first to present the major functions of money as a measure of value, a store of value and as a "numeraire." "The two mineral 'stones,' gold and silver as the (measure of) value for all capital accumulations . . .
States such as El Salvador, Zimbabwe and Ecuador do not use their own currency and use dollars from the United States (US) for their everyday transactions. This fact leads to the assumption that something must have gone wrong in their financial institutions, and in fact neither of those three countries exemplify stability in the international sphere; but this leads to the question what is money? And why is it important for countries to use their own currency? What causes them to stop? This paper will examine the Chartalist theory of money to attempt to answer the question of what money is and represents within a state; then it will briefly analyze the political situation of Somalia, as a very unstable country that maintains its currency, but
We know that Gold has always been a wealth preservation tool for centuries because it tends to act as a hedging instrument specially in developed economies, the importance of gold as a hedging instrument was best established during the economic recession during the year 2009 even though the stock market plunged gold prices still managed to surge. Our study wants to extend the effect of gold as hedging instruments in a developing economy like that of India. Since the beginning of this decade Gold price has increased more than 500% of its price in the year 2000. Another striking feature of Gold is the fact that during the recession period of 2007-10 the price of Gold had increased by around 70%, we should remember that during this period unemployment
International reserves currently each of the other currencies in the world reserve currency trade finance but is saved in order to ensure confidence in the value of the currency. A single global currency to provide confidence and protect/beck up can be a form of important people, the definition will not be included of a backup or replacement of other currencies. Wisely business would no longer have to pay hedging cost which that doing today order
1992; Ghatak 1995 stated that there is a clear relationship between money and economic growth agreed by modern macroeconomics theories. Mean growth of real output on a number of suggested macroeconomic determinants of growth (mean of money supply growth and standard deviation of money supply) is regressed by Kormendi and Meguire (1985) in a cross-section analysis. A set of data of 62 countries is used by Dwyer and Hafer (1988) which resulted to a result of negative relationship between the coefficient of money growth rate and real income growth rate. Bende et al. (2001) examined the FDI consequences on ASEAN-5 economic growth in between 1970-1996.