Global financing and exchange rate mechanisms Essay

Global financing and exchange aim mechanisms - Essay ExampleBig macintosh was specifically downstairs consideration because it was the only chain present in almost both country and have an affordable price, that can be dealt with an average income individual (Kotler & Armstrong, 2009). heroic MAC THEORY Mc Donalds best selling product is Big mackintosh. While hanging out with friends, or for lunch or dinner, mint order mouth watering Big Mac with accessories. Big Mac Theory is a opening named to make this product, the most profiting product slightly the globe. The theory that stabilizes the Big Mac profit is the relationship between currencies, the United States Dollar (USD) with other foreign currencies at current exchange browses. Fed, an economist calls this exchange step theory a game of achieving with currency rates. Big Mac theory tells us that the original exchange rate that is a nominal exchange rate was adjusted for the ratio of different prices to local prices tha t allows economists to comp argon the purchasing power of different currencies (Kotler & Armstrong, 2009). To make it cle arer PPP Purchasing big businessman Parity of foreign currencies is thrifty by the use of Big Mac Theory. Local currency is used for price comparison and result convert it into USD. The country in which Big Mac price in terms of USD is supposedly be higher, it is considered to have an overvalue in comparison to U.S. dollars. Opposite to this if the estimated price in terms of USD is low then(prenominal) it is an undervalued currency. Globally it is considered to be a consistent price around the globe. This theory is referred as Purchasing Power Parity (Kennedy, 2006). Other then Purchasing Power Parity, many factors are there to put influence on the price of Big Mac. Factors other than PPP are labor cost, rent, and other surcharges, which later are added while fixing the final price but that only affects the local consumers and have no relation with McDonalds head institution. If the exchange rates are allowed to fluctuate, the currency value will establish and can be factorized efficiently in these variables that allow investors to employ capital inflow efficiently. In short, Big Mac theory is about profits at exchange rates (Kotler & Armstrong, 2009). GLOBAL FINANCING OPERATIONS AND EXCHANGE RATE MECHANISMS Global financing operations are for those institutions that work or invest on an inter field level and follow set standard regulations, opposed to institutions who work on regional or national level. To maintain these operations, IMF, World Bank, government agencies and ministries of finance design laws and rules through understanding and economic laws. McDonalds is an international food chain and running its franchises all around the globe. It follows a law of one price that means that selling price is fixed in one currency and is sold at the same rate in any country at the exchange rate (Kennedy, 2006). Purchasing Power Parity (P PP) explains that purchasing power of Big Mac vary consort to the price that comes out at exchange rate. For example if Big Mac is sold at $2.5 in U.S., the rate of Big Mac in U.K will be ?2. It does not include tariff charges or carriers to keep cost neutral (Kotler & Armstrong, 2009). RISK MANAGEMENT McDonalds Big Mac is sold every day in different regions in different quantities. It very much depends upon the purchasing power