Due to globalization investors have increasing opportunities to invest on international markets for diversification purposes. This thesis illustrates the added risks of investing internationally due to volatile exchange rates. The purpose is to analyze how a volatile exchange rate affect the risk and return of a portfolio invested in Sweden, when the investor is located in Japan, United Kingdom or the USA. To analyze the effect of exchange rate volatility the focus is on a portfolio consisting of Swedish stocks from the Stockholm Stock Exchange (SSE) O-list. First the risk and return to a hypothetical Swedish investor not exposed to exchange rate volatility is calculated. Then the effects the exchange rates had on the risk and return if a US investor, UK investor and a Japanese investor invested in the same portfolio is analyzed. For the historical period 2005 the portfolio generated a return of 34.36% and a risk of 7.7%. The empirical work showed that for the international investors the risk was increased with between 1.95% – 410.52% and that the actual return decreased due to weakening currencies against the Krona. In an attempt to predict future exchange rate movements the thesis analyses two financial relationships, PPP and IRP, to calculate equilibrium movements. Both PPP and IRP predicted a depreciation of the Dollar and Pound Sterling against the Krona over the next period, but an appreciation of the Yen against the Krona over the same period. The analytical discussion covers the importance of a well functioning financial system, the institutional effects on exchange rates and the confidence in government policies and their ability to succeed in doing what has been promised.

<p>Due to globalization investors have increasing opportunities to invest on international markets for diversification purposes. This thesis illustrates the added risks of investing internationally due to volatile exchange rates. The purpose is to analyze how a volatile</p><p>exchange rate affect the risk and return of a portfolio invested in Sweden, when the investor is located in Japan, United Kingdom or the USA.</p><p>To analyze the effect of exchange rate volatility the focus is on a portfolio consisting of Swedish stocks from the Stockholm Stock Exchange (SSE) O-list. First the risk and return to a hypothetical Swedish investor not exposed to exchange rate volatility is calculated.</p><p>Then the effects the exchange rates had on the risk and return if a US investor, UK investor and a Japanese investor invested in the same portfolio is analyzed. For the historical period 2005 the portfolio generated a return of 34.36% and a risk of 7.7%. The empirical work showed that for the international investors the risk was increased</p><p>with between 1.95% – 410.52% and that the actual return decreased due to weakening currencies against the Krona.</p><p>In an attempt to predict future exchange rate movements the thesis analyses two financial relationships, PPP and IRP, to calculate equilibrium movements. Both PPP and IRP predicted a depreciation of the Dollar and Pound Sterling against the Krona over the next</p><p>period, but an appreciation of the Yen against the Krona over the same period.</p><p>The analytical discussion covers the importance of a well functioning financial system, the institutional effects on exchange rates and the confidence in government policies and their ability to succeed in doing what has been promised.</p>

This Study addressed the inflation accounting problem with respect to Greece. This problem had been unaddressed despite the serious implications it may have on micro- and macro-decision making due to the high and persistent inflation Greece has sustained from 1973 and afterwards. To accomplish the above purpose, the general significance of inflation accounting as well as its specific significance for Greece was established by means of the existing inflation accounting literature and the economic setting of Greece. Following this, the relevance of GPPA rather than CCA to the Greek financial reporting was established by means of correspondence between specific features of GPPA and specific characteristics of the Greek setting. After having established the a priori relevance of GPPA for Greece, the potential usefulness of GPPA to the Greek users of accounts was established as well on an empirical basis. For this purpose the impact of GPPA on Greek accounts was approximated ex ante through detailed restatement procedures and estimation techniques. It was found that inflation has a serious impact on earnings and especially on such important (for decision making) financial parameters as tax rate, dividend payout ratio, and return on capital employed. This impact of inflation on earnings does not seem to be systematic, and hence it cannot be estimated by use of HCA numbers. Therefore, GPPA should be adopted at least on a supplementary (to HCA) basis, if in the future the increase in the inflation rate continues to be as high as it was in the period examined by the study (i.e. 25% or so). In additon to the main conclusion above, other conclusions drawn on the basis of the empirical findings obtained are as follows: 1. The Composite Age Technique used (mainly in the USA) for the restatement of fixed assets and depreciation does not work at all in the Greek case. In contrast, the Dichotomus Year Technique in the first place, and the Equal Additions Technique, in the second place, may be used for adjusting fixed assets not only in developing countries like Greece, but, perhaps in developed countries as well. 2. Operation costs of GPPA can be saved by restating fixed assets and depreciation on an annual rather than monthly basis. 3. Perhaps the Greek government should consider the taxes imposed on corporate net profits in times of high inflation because it was found that the effective tax rate is substantially different from the nominal one. 4. There are serious implications for the Greek businesses in the finding that in real term dividends are paid out of capital rather than out of income. 5. The profitability of Greek companies is low when measured in real terms. Hence, businessmen should exercise every effort to improve it. On the other hand, the Greek government should consider the prices control imposed.

Bakgrund: Globalisering har skapat ett ökat behov för företag att förbli konkurrenskraftiga. Att hantera kostnader effektivt blir allt viktigare i organisationer. Medutgångspunkt i ett fallföretag så har problem kring mätning och jämförbarhetmellan hanteringen av lagerkostnader i geografiskt spridda lager identifierats. I nuläget finns det ingen metod som jämför hur väl hanteringen av lagerkostnader görs i olika länder. De landspecifika egenskaperna skapar olikheter och för att åstadkomma en jämförbarhet så krävs anpassad ekonomistyrning. Syfte: Syftet är att utveckla en kalkylmodell som möjliggör en homogen mätning för olika länders hantering av lagerkostnader. Detta ska kunna skapa en jämförbarhet mellan geografiskt spridda lager. Studien ska utveckla ett komplement till rådande beslutsunderlag som avser stödja en organisations beslutsprocess för lageroptimering. Metod: Här motiveras vilka metodologiska val som gjorts under studiens gång. För att studien ska uppnå sitt syfte så har vi först utvärderat det befintliga styrmedlet för att sen genomföra modellutvecklingen i förhållande till uppställda kriterier för innehålls- och processegenskaper. Materialet för studien har samlats in via det multinationella företaget och genom semistrukturerade intervjuer med tre respondenter inom företaget. Avsnittet motiverar valet av teori och empiri som används och huruvida utvecklingen av modellen i analysdelen ska leda till studiens slutsats. Slutsats: Organisationer har sedan tidigare använt prestationsmätningar för att genom ekonomistyrning kontrollera sina lagerkostnader. Den ökade globalisering har försvårat jämförbarheten givet landsspecifika variabler som påverkar kostnaderna. Genom en kalkylmodellering har ett lagerkostnadsindex utvecklats vilket representerar en standardiserad varukorg. Kapitalstrukturerna neutraliseras och en intern benchmarking möjliggör på så vis att samtliga lagerlokaler kan introduceras att hantera sina lagerkostnader på bästa sätt. / Background: Globalization has created a growing need for companies to remain competitive. It’s becoming more important to manage costs effectively in organizations. Based on a case company problems regarding measurement and comparability of management in warehouse costs between geographically dispersed countries has been identified. Currently there’s no method available for comparison of cost-efficiency of warehouse costs in different countries. The country-specific characteristics create differences. In order to achieve comparability adapted financial control is needed. Purpose: The purpose is to develop a model that enables a homogeneous measurement for management of warehouse costs in different countries. With the intention to make possible comparability between geographically dispersed warehouses. The case study will develop a complement to the existing decision-making. With the aim to support the organization’s decision-making process for warehouse optimization. Method: A motivation for methodological choices made during the study will be presented here. We have first evaluated the existing instrument and then implemented the model in relation to criteria for content- and process characteristics, in order to achieve the aims of the study. Material for the study was collected through the multinational company and by semi-structured interviews with three employees from the company. The section justifies the choice of theory and empirical content used. In the analysis a justification for whether the development of the model leads to the study’s conclusion. Conclusion: Organizations have previously used performance measurements for their financial control of warehouse costs. The increased globalization has complicated the comparability due to country-specific variables that affect costs. Warehouse cost indexes have been developed through a model that takes into account a standardized basket of goods that are relatable to warehouse costs. The capital structure becomes neutralized and internal benchmarking enables such that all warehouse costs can be compared in order to how cost-efficient each and every are.

This study analyzes validity of the relative purchasing power parity (PPP) and the uncovered interest rate parity (IRP) theories for the dollar/euro exchange rate. The period of analysis is from 1990 to 2003. The dollar/euro exchange rate represents the currencies of a country, the USA, and a region, the Euro Area. The basic data needed for this study are the dollar/euro exchange rate, and the inflation and the interest rates for the USA and the Euro Area. Since the Euro Area was officially formed on January 1st, 1999, we had difficulty in finding the data for the Euro Area. For the lacking Euro Area data, synthetic values are created by using the individual data of Euro Area countries. These synthetic values are treated as the equivalents of the actual values and are used in the parity implied dollar/euro exchange rate calculations. The parity implied dollar/euro exchange rates are compared with the actual dollar/euro exchange rates. Our results indicate that the parity implied dollar/euro exchange rates are statistically significantly different from the actual dollar/euro exchange rates. In other words, both the PPP and the IRP theories do not hold for the dollar/euro exchange rate.

This dissertation examines the role of the fundamental economic variables (price levels, interest rates, and income levels) in the determination of foreign exchange rates during the period 1973-1978. Purchasing power parity, the International Fisher Effect, and the relationship of exchange rates with income levels through the marginal propensity to import were integrated, as suggested by the literature, and a fairly reasonable specification of a model for exchange rate determination was measured. The results of speculation tests indicate destabilizing results for some currencies and stabilizing results for the others; the coefficient of expectation tests, however, lend support to the destabilizing hypothesis. The conclusion of the research, therefore, is that the exchange rates of the major industrial countries which are of prime importance to the international financier and investor, and to the student of international finance and trade, are primarily determined, not by the fundamental economic variables, but by speculative forces which are believed to be of a destabilizing nature.

Conselho Nacional de Desenvolvimento CientÃfico e TecnolÃgico / Este estudo investiga os efeitos da estabilizaÃÃo da inflaÃÃo no Brasil nos Ãndices de preÃos regionais atravÃs da teoria da Paridade do Poder de Compra. Para tanto, utilizamos o Ãndice Nacional de PreÃos ao Consumidor Amplo, IPCA, abrangendo as nove regiÃes metropolitanas brasileiras durante o perÃodo de 1989 a 2011. Iniciamos nossa anÃlise com o teste de Perron e Yabu (2009) com o objetivo de verificar possÃveis quebras estruturais nas sÃries de cÃmbio real entre as regiÃes metropolitanas. Visando confirmar a hipÃtese da Paridade do Poder de Compra para o Brasil, aplicamos o teste de raiz unitÃria ERS (1996) bem como o teste de Kim (2000) posteriormente modificado por Harvey, Leybourne e Taylor (2006) para verificar possÃveis mudanÃas de persistÃncia nas sÃries. Durante o perÃodo analisado foi detectada uma diminuiÃÃo da persistÃncia das sÃries, creditamos esse fenÃmeno ao controle inflacionÃrio com o implemento do Plano Real, evidenciando que a estabilidade dos preÃos influi positivamente na validaÃÃo da hipÃtese da Paridade do Poder de Compra. / This study investigates the effects of inflation stabilization in Brazil in regional price indices through the theory of Purchasing Power Parity. We used the National Index of Consumer Prices Broad, IPCA, covering nine metropolitan regions during the period of 1989 to 2011. We begin our analysis with the test of Perron and Yabu (2009) in order to check for possible structural breaks in the series of real exchange rates between the metropolitan areas. To confirm the hypothesis of Purchasing Power Parity for Brazil, we apply the unit root test ERS (1996) as well as the test of Kim (2000) later modified by Harvey, Leybourne and Taylor (2006) to check for possible changes of persistence in the series. During the period analyzed was detected a decrease of the persistence of the series, we credit this phenomenon to the implement of the Real Plan, showing that price stability positively influence the validation of the hypothesis of Purchasing Power Parity.

The theories of the law of one price and purchasing power parity are thought to hold almost exactly in financial market, but it seems less likely to occur in international trade where arbitrage opportunities take place. The purpose of this study is to test whether the purchasing power parity holds for commodities in various national markets, for which a quantitative method is followed. For identical goods, the prices should be equal across countries. In fact, the prices vary significantly across ‘truly homogenous’ goods within a product group. The finding suggests that differences in productivity and value-added tax do have significant positive impacts on price settings. As a consequence, purchasing power parity definitely does not prevail as well as law of one price does not. Further studies can use these findings to examine the extent and permanence of violations of the law of one price.

[pt] A paridade do poder de compra da moeda (“PPP”), uma das teorias mais discutidas no meio acadêmico, sustenta que a taxa de câmbio nominal entre duas moedas deve ser igual à relação dos níveis de preços agregados entre os dois países, de modo que uma unidade de moeda de um país terá o mesmo poder de compra em um país estrangeiro. O objetivo deste trabalho é investigar a validade da teoria de PPP e a inovação que trazemos para a literatura é a aplicação desta teoria para o desenvolvimento de uma estratégia quantitativa de compra/venda de pares de moedas utilizando as séries diárias de preços calculadas pela PriceStats. Os resultados encontrados aqui sugerem que, apesar de identificarmos uma relação entre o diferencial de inflação e movimentos da taxa de câmbio nominal nas séries do PriceStats, observamos um desempenho quantitativo pior das nossas estratégias de investimento em moedas baseadas no modelo de Paridade do Poder de Compra da Moeda (PPP) vis à vis outros modelos padrão dentro da literatura financeira. Por outro lado, para pares específicos de moedas, encontramos números interessantes quando baseamos nossa estratégia nos modelos de PPP, observando Hit Ratio superior a 50% e retorno acumulado positivo da estratégia. / [en] The Purchasing power parity (PPP), one of the most consolidated theories in academia, holds that the nominal exchange rate between two currencies must be equal to the ratio of aggregate price levels between the two countries, so that a currency unit of one country will have the same purchasing power in a foreign country. The objective of this work is to investigate the validity of the PPP theory and the innovation that we bring to the literature is using this theory to the develop a quantitative strategy to buy/sell currency pairs using the daily price series calculated by PriceStats. The results found here suggest that, despite identifying a relationship between the inflation differential and nominal exchange rate movements in the Price Stats series, we observe a worse quantitative performance of our currency investment strategies based on the Power Parity model of Purchase vis a vis the standard models within the financial literature. On the other hand, for specific currency pairs, we found interesting numbers when we based our strategy on PPP models, observing a Hit Ratio above 50% and a positive cumulative return of the strategy, results very similar to those found for the reference models already mentioned within the financial literature.

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