What is purchasing power risk, Financial Management

Assignment Help:

Q. What is Purchasing Power Risk?

Variations in the returns are caused also by the loss of purchasing power of currency. Inflation is the reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase in capital value. Purchasing power risk is the probable loss in the purchasing power of the returns to be received. The rise in price penalizes the returns to the investor, and every potential rise in price is a risk to the investor. The inflation may be demand-pull or cost-push inflation.

In the demand-pull inflation, the demand for goods and services are in excess of their supply. At full employment level of factors of production, the economy would not be able to supply more goods in the short run and the demand for products pushes the price upward. The supply cannot be increased unless there is an expansion of labor force or machinery for production. The equilibrium between demand and supply is attained at a higher price level.

The cost-push inflation, as the name itself indicates that the inflation or the rise in price is caused by the increase in the cost. The increase in the cost of raw material, labor and equipment makes the cost of production high and ends in high price level. The producer tries to pass the higher cost of production to the consumer. The laborers or the working force try to make the corporate to share the increase in the cost of living by demanding higher wages. Thus, the cost push inflation has a spiraling effect on price level.


Related Discussions:- What is purchasing power risk

Suggestion regarding Credit limit. Should it be approved or, Suggestion reg...

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Determine the calculations for the cash flows, The calculations for the cas...

The calculations for the cash flows Actual amount of cash paid or received during the period needs to be established. This can get quite  tricky  as  there  would be  accruals

What is the de-merger, What is the De-merger This is splitting up of a ...

What is the De-merger This is splitting up of a group into two or more separate bodies. The group is split into separate entities, but the shareholders remain the same. It is o

Irregular variation in time series analysis, Irregular Variation As the...

Irregular Variation As the name suggests, the movement of the variable is random in nature without consistency and therefore, highly unpredictable. Since this type of irregular

What is estate tax, Q. What is Estate Tax? Estate Tax - Tax on the valu...

Q. What is Estate Tax? Estate Tax - Tax on the value of a DECENDENT'S taxable estate, usually defined as the decedent's ASSETS less LIABILITIES and certain expenses that may in

Determine rates that company enter into a $/£ currency swap, Suppose a comp...

Suppose a company is quoting swap rates as follows:  7.75 - 8.10 percent yearly against 6-month dollar LIBOR for dollars and 11.25 - 11.65 percent yearly against six-month dollar L

Federal reserve system forecast, A. Joe wants to invest in Nebraska Municip...

A. Joe wants to invest in Nebraska Municipal 6% GOB that are rated AA. Joe's tax rate is usually between 28% .  GE plans to sell AA rated 8% coupon bonds. Compute Joe's after-tax i

Explain the term- interest cover, Explain the term- Interest cover Int...

Explain the term- Interest cover Interest cover =Profit before interest and tax (PBIT)/ Interest payable(no. of times) Interest cover represents the safety of earnings tha

Time value of money, Can you help me out on the Time value of money????? ...

Can you help me out on the Time value of money????? I need urgent help on this topic...

Define the term- cash purchases, Define the term- Cash purchases     Shar...

Define the term- Cash purchases     Shareholders of the target company are bought out completely and have no further stake in business. This is good if predator shareholders want

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd