H.

Mammadali

S.Mahmud

CASE 1
 • Your company offered you an expatriate
position and gave you two options to
choose from. You may either move to
Austria or Australia. You will receive the
same salary regardless of which country
you choose. A friend mentions to you that
the OECD Statistics portal includes data on
“comparative price levels.” Find the latest
CASE 1 data for Australia and Austria and discuss
how your purchasing power in one
country will compare to the other. Which
country is more advantageous? How does
the OECD use concept of PPP to calculate
the comparative price levels?
Inflation rate in Australia
Inflation rate in
Austria
Comparison
Forecast table
for Australia
Forecast
table for
Austria
 Definition of
Price level indices

• Comparative price level indices are the

ratios of purchasing power parities to
market exchange rates. At the level of GDP,
comparative price levels provide a measure
of the differences in the general price levels
of countries. This indicator is measured as
an index.
Price level
indices
Comparison
Cost of living in
Australia
Cost of living
in Austria
 You are the finance manager of a company and currently your
company has $100 million in cash that will not be needed for a
few more weeks. You are thinking about arbitrage
CASE opportunities using Euro and GBP in order to put the cash
reserves into use and hopefully earn more money for your
company. You have to make a decision about details of your
arbitrage with regard to which currency to buy in which order.
Check exchange rates, find current rates for USD, Euro, and
GBP, and share the details of your arbitrage plan with your CEO.
Is it possible to find an arbitrage . You are the finance manager
of a company and currently your company has $100 million in
cash that will not be needed for a few more weeks. You are
thinking about arbitrage opportunities using Euro and GBP in
order to put the cash reserves into use and hopefully earn
more money for your company. You have to make a decision
about details of your arbitrage with regard to which currency to
buy in which order. Check exchange rates, find current rates for
USD, Euro, and GBP, and share the details of your arbitrage plan
with your CEO. Is it possible to find an arbitrage trade to
generate some profits (assume you will have no trading costs)?
If so, what should be the order of your transactions in order to
make a profit from this arbitrage operation?
ARBITRAGE
•Arbitrage is the process of exploiting differences in the
price of an asset by simultaneously buying and selling
it.
•Quantity should be same.
•The pay-off should be large enough to cover the costs
involved in executing the trades (i.e. transaction costs)
BID and ASK
• The term bid and ask (also known as bid and offer) refers to a two-
way price quotation that indicates the best potential price at which a
security can be sold and bought at a given point in time.
• The bid price represents the maximum price that a buyer is willing to
pay for a share of stock or other security.
• The ask price represents the minimum price that a seller is willing to
take for that same security.
 Exchange Rates

1 USD 0.908000 EUR 1 EUR 1.10132 USD

1 USD 0.778043 GBP 1 GBP 1.28528 USD

1 EUR 0.856779 GBP 1 GBP 1.16716 EUR

https://www.fxstreet.com/rates-charts/rates 27.11.2019 08:33
https://www.fxstreet.com/rates-charts/rates 27.11.2019 08:45