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

Scope of finance functions, SCOPE OF FINANCE FUNCTIONS The functions of...

SCOPE OF FINANCE FUNCTIONS The functions of Financial Manager can generally be sub-divided into two: The Routine functions and the Managerial Functions. Managerial Finance F

Cash management control, I need a report on the topic Cash Management Contr...

I need a report on the topic Cash Management Control. Can you please assist me for Cash Management Control report for about 2500 words?

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

What do you mean by working capital, Q. What do you mean by Working Capital...

Q. What do you mean by Working Capital? Meaning of Working Capital:- Working capital management is a significant aspect of financial management. In business money is necessar

Relationship between financial decision making and risk , Discuss the relat...

Discuss the relationship between financial decision making and risk and return. Would all financial managers view risk-return tradeoffs similarly

Regulatory aspect in employees provident fund organization, Regulatory Aspe...

Regulatory Aspect Employees Provident Fund Organization (EPFO) is under the Ministry of Labor and is a primary organization for retirement income for private employees in India

What is the bonds value, Third Inc. wishes to issue a perpetual callable bo...

Third Inc. wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 30% chance that the interest rate will be 4.5% and a 70% chance that th

Investor’s considerations -financial market, Investor's Considerations ...

Investor's Considerations As mentioned above, every investor before taking an investment decision, must consider the following aspects: Risk: The primary consideration for t

State the advantages of ias 14 risk and return approach, IAS 14 "risk and r...

IAS 14 "risk and return approach" Advantages Highlights the profitability, risk and returns of each segment. Information is more comparable with other entities.

Why is the coefficient of variation a better risk measure, Why is the coeff...

Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects? The coefficient of variatio

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