International finance Essay Example | Topics and Well Written Essays - 1000 words - 2

International finance - Essay Example It is suggested that an increase in domestic money supply causes depreciation. Again an increase in domestic money demand for example results from domestic income increase or decrease in the expected inflation causes appreciation (Barnett & Chauvet, 2011). The model assumes that the purchasing power parity usually holds. The changes in price influence the changes in exchange rates. The flexible model assumes that parity of purchasing power (PPP) holds continuously. PPP implies that only traded goods exist, the modified model permits the distinction between non-traded and traded goods. The flexible model relies on the continuous PPP and existence of the stable money demand functions for both domestic as well as foreign economies. Recent experience has shown that the real rates of exchange have fluctuated over the years therefore causing shifts in the international competitiveness (Barnett & Chauvet, 2011). Flexible model can be termed as a market- clearing equilibrium model where purchasing power parity between different countries’ price levels is assumed. An increase in the domestic interest will cause a decrease in the demand for domestic money hence causing depreciation in the currency. Once Friedman (1953) stated that the stability of flexible exchange rate was determined by the stabilization of the speculators’ behaviors. Flexible model sugge sts that the prices including wages and goods prices, adjust instantaneously to their levels of equilibrium. In order to determine the exchange rate, it is clear that a rapid increase in home money supply than the foreign money supply will increase the rates of exchange one on one therefore leading to depreciation of home currency. The exchange rate which normally is the price of foreign currency increases with the stock of money (Kouretas & Papadopoulos, 2014). On the other hand, an

The Useful Tool Essay Example | Topics and Well Written Essays - 2000 words

The Useful Tool - Essay Example Similarly, competitors should also be taken into notice when setting up prices i.e. a product which has the same quality but higher price than its competitor’s product then it would not be preferred by the market segments. Products of higher quality should be specified higher prices than other products of lower quality. This helps the organization to attract more customers towards it and the benefit that the customers want to buy the best thing increases the revenue of the organization. A lot of products being sold by the organization are sold at a much-reduced price than buying the separate products. This type of pricing is known as ‘bundle pricing’. Moreover, at times the organization place the prices of the products $1 less than the significant figure which also helps them to attract customer towards it. This type of pricing is known as the psychological pricing. Lastly, the organization tends to sell additional products with the original products and specify a n exact price for both of these products. This gives them an edge over other competitors which only offer the desired product without any additional one. This type of pricing is known to be ‘optional pricing’. All these pricing together help the organizations to develop pricing strategies according to the structure of the market. Furthermore, the products being sold at the market are usually attracted by the exact prices they are being sold at. And the organizations should have a particular interest in this approach to the marketing mix.