Cleanliness is next to Godliness “Cleanliness is next to Godliness,” we have been saying this for a long time but have we practiced it in real life? I guess the honest answer would be no. We all know the importance of keeping our environment clean and healthy, but we always fail to act. Here, Vrikshit Foundation has brought a fantastic opportunity for us to serve back to society. It has organized a drive where they need our valuable time to clean our beloved Pink city Jaipur. Vrikshit Foundation is a Delhi-based organization conducting cleanliness drives, environment protection, and awareness programs. It was started in 2019 and has already spread across 14 states, and recently they have started their activities in Jaipur. Their motive is to create a surrounding where people would love being around. They have successfully cleaned Yamuna bank and also planted 10k trees around the nation and are continuing with their excellent work. The enthusiastic youth of Vriks
PURCHASING POWER PARITY THEORY
(PPP - THEORY)
This theory was developed by CRUSTAR in 1920 to determine the exchange rate under paper currency standards . this theory explains that exchange rate is determined on the basis of relative price level of purchase power .
In other words , PPP is links spot exchange rates to nations price levels. PPP theory focus on the inflation exchange rates relationship . if the law of one price were true for all goods and services , we could obtain the theory of purchasing power parity. PPP could also thought of as an alternative currency exchange rate but based on actual prices .
TYPES OF FOREIGN EXCHANGE RATE :-
A) Spot rate
B) Fixed and Flexible rate
A) SPOT RATE - A spot foreign exchange rate is the rate of a foreign exchange contract for immediate delivery (usually within two days). The spot rate represents the price that a buyer expects to pay for a foreign currency in another currency.
B) FIXED RATE - A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a currency's value is fixed against either the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.
C) FLEXIBLE RATE - A flexible exchange-rate system is a monetary system that allows the exchange rate to be determined by supply and demand. Every currency area must decide what type of exchange rate arrangement to maintain. Between permanently fixed and completely flexible however, are heterogeneous approaches.
THERE ARE TWO FORMS OF PPP THEORY :-
1) ABSOLUTE FORM OF PPP
2) RELATIVE FORM OF PPP
1) ABSOLUTE - the absolute PPP theory postulates that the equilibrium exchange rate between currencies of two countries is equal to the the ration of the price level in the two nations .
thus, prices of similar products of two different countries should be equal when measured in common currency as per the absolute form of PPP
2) RELATIVE - The relative form of PPP theory is an alternative version which postulates that the change in exchange rate over a period of time should be proportional to relative change in the price level in two nation over the same time period . this form accounts for market imperfection like tariffs , transportation cost and quotas .
ADVANTAGES AND DISADVANTAGES OF PPP :-
ADVANTAGES OF PPP:- It is important for developing reasonably accurate economic statistics to compare the market conditions of different countries . it often used to equalize/calculate of GDP .
DISADVANTAGES OF PPP:- This theory assumes that changes in price level may being change in exchanges rate also . here exchange rate is related with purchasing power of currencies of two countries .
Therefore PPP theory helps to avoid misleading international comparison that can arise with the use of market exchange.
FORMULA TO CALCULATE PPP :-
S = P1/P2
Where,
S= Exchange rate of currency 1 to currency 2
P1= cost of good "x" in currency 1
P2= cost of good "x" in currency 2
PPP or Purchasing Power Parity theory, posits that exchange rates between two countries' currencies should adjust until the price levels in both countries are equivalent when measured in a common currency. In simpler terms, it suggests that a basket of goods should cost the same in different countries when converted to a common currency, after accounting for exchange rates. This theory helps understand long-term exchange rate movements and can influence international trade and investment decisions. A good economics tuitions will help to understand the concept better.
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