Australian Cattle s Assignment Trade Patterns Of Australia

Australian Cattle’s Assignment Trade patterns of Australia Trade pattern means a country’s trades of goods and services with other countries, in certain directions. Although Australia is not playing a big role on the stage of global economy, trade is crucial to the geographically isolated continent. The percentages of export and import product are equal which around 20 percent of domestic productions. The main export products in Australia are agricultural products and mineral, which take up about 65% of total national export revenue. Agricultural export products consist of beef, wheats, wool, wine, cotton etc. Here in this case, it is talking about the second largest composition in the group - beef and cattle. Every year, there is nearly two thirds of Australian agricultural products export overseas and it is stable increasing as far as we can see. Australian trade direction changed from UK to Japan and then switched to China recently followed by the growth of Chinese economy. Between 2012 and 2013, agricultural products worth $38,268 million in total were export to the top country - China. Trade performance in the Australian Beef industry Unlike the slowdown trend of Australian general goods and services export, the export of beef kept increase. In 2012, export of beef was 4754 million dollars which rose to 5051 million dollars in 2013. The proportion of beef in total agricultural exports increased 0.4 percent (from 12.8% to 13.2%) in one year. Australia is currently oneShow MoreRelatedApa Style4871 Words   |  20 Pagesreferencing based on the Publication Manual of the American Psychological Association (6th ed.). This summary gives examples of the APA referencing style for a number of information sources that you will commonly use. If you cannot find the relevant pattern here, then refer to the APA Publication Manual (6th ed.). 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Contract Act 1872 Free Essays

string(34) " not constitute a valid contract\." Legal Aspects Of Business – Indian Contracts Act 1872 Indian Contract Act 1872 is the main source of law regulating contracts in Indian law. CitationAct No. 9 of 1872 Enacted byParliament of India Date enacted25 April 1872 Date commenced1 September 1872 The law relating to contracts in India is contained in Indian Contract Act, 1872. We will write a custom essay sample on Contract Act 1872 or any similar topic only for you Order Now The Act was passed by British India and is based on the principles of English Common Law. It is applicable to the All States of India except the State of Jammu Kashmir. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties in India. History The Indian Contract Act came into force on 1 September 1872. It Was Enacted Mainly With a View To ensure Reasonable Fulfillment of Expectation Created By the promises of the parties and also enforcement of obligations prescribed by an agreement between the parties. The Third Law commission of British India formed in 1861 under the stewardship of chairman Sir John Romilly, with initial members as Sir Edward Ryan, R. Lowe, J. M. Macleod, Sir W. Erle (succeeded by Sir. W. M. James) and Justice Wills (succeeded by J. Henderson), had presented the report on contract law for India as Draft Contract Law (1866). The Draft Law was enacted as The Act 9 of 1872 on 25 April 1872 and the Indian Contract Act, 1872 came into force with effect from 1 September 1872. Before the enactment of the Indian Contract Act, 1872, there was no codified law for contract in India. In the Presidency Towns of Madras, Bombay and Calcutta law relating to contract was dealt with the Charter granted in 1726 by King George I to the East India Company. Thereafter in 1781, in the Presidency Towns, Act of Settlement passed by the British Government came into force. Act of Settlement required the Supreme Court of India that questions of inheritance and succession and all matters of contract and dealing between party and party should be determined in case of Hindu as per Hindu law and in case of Muslim as per Muslim law and when parties to a suit belonged to different persuasions, then the law of the defendant was to apply. In outside Presidency Towns matters with regard to contract was mainly dealt with English Contract Laws; the principle of justice, equity and good conscience was followed. Development The Act as enacted originally had 266 Sections, it had wide scope and included. General Principles of Law of Contract::::::::: 1 to 75 Contract relating to Sale of Goods::::::::::::76 to 129 Special kinds of Contracts (includes indemnity, guarantee, bailment pledge:::::::::::::::::125 to 238 Contracts relating to Partnership::::::::::::239 to 266 Indian Contract Act embodied the simple and elementary rules relating to Sale of goods and partnership. The developments of modern business world found the provisions contained in the Indian Contract Act inadequate to deal with the new regulations or give effect to the new principles. Subsequently the provisions relating to the sale of goods and partnership contained in the Indian Contract Act were repealed respectively in the year 1930 and 1932 and new enactm ents namely Sale of Goods and Movables Act 1930 and Indian Partnership act 1932 were re-enacted. At present the Indian Contract Act includes: General Principles of Law of Contract:::::: 1 to 75 Special kinds of Contracts (includes indemnity, guarantee, bailment pledge::::::::::::::::::::::::::125 to 238 Definition Section 2(h) of the Act defines the term contract as â€Å"any agreement enforceable by law†. There are two essentials of this act, agreement and enforceability. Section 2(e) defines agreement as â€Å"every promise and every set of promises, forming the consideration for each other. † Again Section 2(b) defines promise in these words: â€Å"when the person to whom the proposal is made signifies his assent there to, the proposal is aid to be accepted. Proposal when accepted, becomes a promise. † And other words Say Agreement is Sum of all contract are agreement, but all agreement are not contract.. ?CONTRACT=AGREEMENT+ENFORCEABLE BY LAW( LAW) Essential Elements of a Valid Contract According to Section 10, â€Å"All agreements are contracts, if they are made by the free consent of the partie s, competent to contract, for a lawful consideration with a lawful object, and not hereby expressly to be void. † Essential Elements of a Valid Contract are: 1. Proper offer and proper acceptance. there must be an agreement based on a lawful offer made by person to another and lawful acceptance of that offer made by the latter. section 3 to 9 of the contract act, 1872 lay down the rules for making valid acceptance 2. Lawful consideration: An agreement to form a valid contract should be supported by consideration. Consideration means â€Å"something in return† (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful. 3. Competent to contract or capacity: In order to make a valid contract the parties to it must be competent to be contracted. According to section 11 of the Contract Act, a person is considered to be competent to contract if he satisfies the following criterion: The person has reached the age of maturity. The person is of sound mind. The person is not disqualified from contracting by any law. 4. Free Consent: To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake. . Lawful Object and Agreement: The object of the agreement must not be illegal or unlawful. 6. Agreement not declared void or illegal: Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence they do not constitute a valid contract. You read "Contract Act 1872" in category "Papers" 7. Intention To Create Legal Relationships:- when the two partie s enter in to an agreement,there must be intention to create a legal relationship between them †¦ if there is no such intention on the part of the parties .. there is no contract between them .. greements of a social or domestic nature do not contemplate legal relationship;as such they are not contracts. 8. Certainty, Possibility Of Performance 9. Legal Formalities 10. By surety Types of contracts On the basis of validity: 1. Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. 2. Void contract[Section 2(g)]: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. There are many judgments which have stated that where any crime has been converted into a â€Å"Source of Profit† or if any act to be done under any contract is opposed to â€Å"Public Polic y† under any contract—than that contract itself cannot be enforced under the law- 3. Voidable contract[Section 2(i)]: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party. 4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. â€Å"All illegal agreements are void agreements but all void agreements are not illegal. † 5. Unenforceable contract: Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable. On the basis of formation: 1. Express contract: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract. 2. Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied. 3. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. On the basis of performance: 1. Executed contract: An executed contract is one in which both the parties have performed their respective obligation. . Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract. 3. Unilateral contract: A unilateral contract is one in which only one party has to perform his obligation at the time of the formatio n of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. 4. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executory consideration. Offer Proposal is defined under section 2(a) of the Indian contract Act, 1872 as â€Å"when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal/offer†. Thus, for a valid offer,the party making it must express his willingness to do or not to do something. But mere expression of willingness does not constitute an offer. An offer should be made to obtain the assent of the other. The offer should be communicated to the offeree and it should not contain a term the non compliance of which would amount to acceptance. Classification of Offer 1. General Offer: Which is made to public in general. 2. Special Offer: Which is made to a definite person. 3. Cross Offer: Exchange of identical offer in ignorance of each other. 4. Counter Offer: Modification and Variation of Original offer. 5. Standing, Open or Continuing Offer: Which is open for a specific period of time. The offer must be distinguished from an invitation to offer. Invitation to offer â€Å"An invitation to offer† is only a circulation of an invitation to make an offer, it is an attempt to induce offers and precedes a definite offer. Acceptance of an invitation to an offer does not result in formation of a contract and only an offer emerges in the process of negotiation. A statement made by a person who does not intend to bound by it but, intends to further act, is an invitation to offer. Acceptance According to Section 2(b), â€Å"When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Rules: 1. Acceptance must be absolute and unqualified. 2. Communicated to offeror. 3. Acceptance must be in the mode prescribed. 4. Acceptance must be given within a reasonable time before the offer lapses. 5. Acceptance by the way of conduct. 6. Mere silence is no acceptance. Silence does not per-se amounts to communication- Bank of India Ltd. Vs. Rustom Cowasjee- AIR 1955 Bom. 419 at P. 430; 57 Bom. L. R. 850- Mere silence cannot amount to any assent. It does not even amount to any representation on which any plea of estoppel may be founded, unless there is a duty to make some statement or to do some act 7. ffree and offerer must be consent Lawful consideration According to Section 2(d), Consideration is defined as: â€Å"When at the desire of the promisor, the promisee has done or abstained from doing, or does or abstains from doing, or promises to do or abstain something, such an act or abstinence or promise is called consideration for the promise. â€Å"Consideration† means to do something in return. In short, Consideration means quid pro quo i. e. something in return. An agreement must be supported by a lawful consideration on both sides. The consideration or object of an agreement is lawful, unless and until it is: forbidden by law, or s of such nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the court regards it as immoral, or opposed to public policy. consideration may take in any form-money,goods, services, a promise to marry, a promise to forbear etc. Contract Opposed to Public Policy can be Repudiated by the Court of law even if that contract is beneficial for all of the parties to the contract- What considerations and objects are lawful and what not-Newar Marble Industries Pvt. Ltd. Vs. Rajasthan State Electricity Board, Jaipur, 1993 Cr. L. J. 1191 at 1197, 1198 [Raj. ]- Agreement of which object or consideration was opposed to public policy, unlawful and void- – What better and what more can be an admission of the fact that the consideration or object of the compounding agreement was abstention by the board from criminally prosecuting the petitioner-company from offence under Section 39 of the act and that the Board has converted the crime into a source of profit or benefit to itself. This consideration or object is clearly opposed to public policy and hence the compounding agreement is unlawful and void under Section 23 of the Act. It is unenforceable as against the Petitioner-Company. Competent to contract Section 11 of The Indian Contract Act specifies that every person is competent to contract provided: 1. He should not be a minor i. e. an individual who has not attained the age of majority i. e. 18 years. 2. He should be of sound mind while making a contract. A person with unsound mind cannot make a contract. 3. He is not a person who has been personally disqualified by law. 4. not pardanashin women. Free Consent According to Section 14, † two or more persons are said to be consented when they agree upon the same thing in the same sense (Consensus-ad-idem). A consent is said to be free when it is not caused by coercion or undue influence or fraud or misrepresentation or mistake. Elements Vitiating free Consent 1. Coercion (Section 15): â€Å"Coercion† is the committing, or threatening to commit, any act forbidden by the Indian Penal Code under(45,1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. . Undue influence (Section 16): â€Å"Where a person who is in a position to dominate the will of another enters into a contract with him and the transaction appears on the face of it, or on the evidence, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in the position to dominate the will of the other. † 3. Fraud (Section 17): â€Å"Fraud† means and includes any act or concealment of material fact or misrepresentation made knowingly by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract. 4. Misrepresentation (Section 18): † causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement†. 5. Mistake of fact (Section 20): â€Å"Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void†. Performance Of Contracts The promise under a contract can be performed, as the circumstances may permit, by the promisor himself, or by his agent or his legal representative. 1. Promisor himself: â€Å"The contracts which involve the exercise of personal skill must be performed by the promisor himself. 2. Agent: â€Å"Where personal skill is not required, the promisor may appoint his agent to perform it. . Representatives: â€Å"On the death of the promisor, the legal heirs of the promisor must perform the contract unless a contrary intention appears in the contract. (section 37) 4. Third persons: â€Å"When a promisee accepts performance from a third person, he cannot afterwards enforce it against promisor†. 5. Joint promisors: â€Å"When two or more persons have made a joint promise, all such pers ons must jointly fulfil the promise, unless a contrary intention appears from it†. Agency In law, the relationship that exists when one person or party (the principal) engages another (the agent) to act for him, e. g. to do his work, to sell his goods, to manage his business. The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. The competent agent is legally capable of acting for this principal vis-a-vis the third party. Hence, the process of concluding a contract through an agent involves a twofold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, thereby imposing certain duties on the representative (diligence, accounting, good faith, etc. ). Under section 201 to 210 an agency may come to an end in a variety of ways: (i) By the principal revoking the agency – However, principal cannot revoke an agency coupled with interest to the prejudice of such interest. Such Agency is coupled with interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e. g. , where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agent’s authority till the goods are actually sold, nor is the agency terminated by death or insanity. Illustrations to section 201) (ii) By the agent renouncing the business of agency; (iii) By the business of agency being completed; (iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act. 1872) The principal also cannot revoke the agent’s authority after it has been partly exercised, so as to bind the principal (Section 204), though he can always do so, before such authority has been so exercised (Sec 203). Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (Section 206). As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (Section 208). When an agent’s authority is terminated, it operates as a termination of subagent also. (Section 210) How to cite Contract Act 1872, Papers

The Peter Russell Rock Garden-Free-Samples -Myassignmenthelp.com

Question: Discuss three of the rock samples from the Peter Russell Rock Garden". Answer: The rocks from the Peter Russell Rock Garden Discussion The Peter Russell Rock Garden is one of the famous gardens of rocks which is situated in Ontario in the campus of Waterloo University. The garden was designed in the year of 1982 as a celebration part of the twenty-fifth anniversary of the Waterloo University. The president J. Gerald Hagey inaugurated the garden in the garden of the university campus. The special feature of the garden is the almost 70 kinds of different rocks are present in that garden which makes the best geographical view of that place. In this garden Frank Slide boulder, anthracite coal, and even Wawa gold ore are some rocks which have another geographical names (Waldron, et al. 2016). Jasper Conglomerate Jasper Conglomerate is a form of Paleoproterozoic quartz and jasper pebble conglomerate which was found in the middle part of the Lorrain Formation of the Cobalt Group and the formed under the Huronian Supergroup. The geologist give some specialized name of this rocks are pebble jasper conglomerate, St. Joseph Island puddingstone, Drummond Island puddingstone, Michigan puddingstone (Yorath Gadd, 2017). These rocks are mainly formed near the area of St. Joseph Island and St. Mary River which is situated in the Bruce Mines of the Northern Ontario. The rock is mainly consists of several materials like the red jasper pebbles which is composed by the sandy gravels and also includes white, semi-transparent and black quartzite. This rock is mainly consists of more pebbles than other mixtures. The rock is looks like a cryptocrystalline bolder size pebble which are shown in the glacial erratic in the Pleistocene glacial tills and drift. It is a thick material which is forming in the Mississippi Delta. The Jasper Conglomerate is mainly getting the formation by the river deltas which drained a landmass towards the north. The Jasper Conglomerate mainly formed almost 2.2 2.5 billion years ago and in the Peter Russell Rock Garden it was the first rock that was found. In the park it can be find under the sand and the Ontario Place (Waldron, et al. 2016), Toronto donate this rock in the park. In the park it was also known Pudding Stone in Peter Russell Rock Garden. This stone used as decorative stone which is consists of good polish. It can be formed in different color like bloodstone, green, and lemon. It is the most common types of rock which are uses as gems and the Imperial Jasper and Madagascar Jasper are the rarest among others. People uses this rocks as a gemstone and fashionable junk jewelers (Bonetto, et al. 2017). Gneiss, Grenville Province Gneiss is a form of rock which is mainly processed by the high grade regional metamorphic or the sedimentary rock. It is basically the composed layers of sheet-like planar structures which is foliated in alternative darker and lighter colored bands. The minerals are recrystallized with heat and pressure which made the transformations of the rock (Duca, Alonso Scavia, 2015). It is mainly form from the shale which is also known as sedimentary rock then it is compiling with the phyllite, schist and slate. Thos rock is sometime known as garnet gneiss" and "biotite gneiss." There are different types of Augen gneiss whixch is the formation of metamorphism of granite, Henderson gneiss which is form in two sequentials, Lewisian gneiss which is mainly found in the Scottish mainland and metamorphosed by several mixtures of marble, quartzite and mica schism and another forms is Archean and Proterozoic gneiss which is used in the Sphinx of Taharqo of the Nile Valley. Gneisses from western Greenland comprise the oldest crustal rocks known. Gneiss is an old German word meaning bright or sparkling. These rocks are mainly found before the 1-2 million years ago. They are actually found in the North Bay or Red Bridge of Ontario. The Gneiss is the metamorphosed rock which became the granite and formed the sedimentary rock. The gneiss becomes pink for the presence of Muscovite which is one of the interesting facts about it (Ietto Bernasconi 2016). The gneiss rocks are mainly uses for the flooring in houses, offices and any place. As a ornamental stone, it is very well known rocks which can be find in any places. For the formation of gravestones it is one the favorite rocks which are uses. These kinds of rocks are quite famous in the Peter Russell Rock Garden which help to increase the geographical value of the park. Amabel Dolostone, Paleozoic Sedimentary Rock The Dolostone or dolomite rock is one kind of sedimentary carbonate rock which is consists of mineral dolomite and CaMg(CO3)2. There are equal amount of magnesium and calcium are also found this rock. The formation of the dolostone is mainly occurring with magnesium which is replaced by the limestone or lime mud which can be related with the lithification. The dolomite sometimes becomes dolomitic limestone which is the conversion of calcite to by dolomitization. The dolomites mainly found in different caves which are actually form with limestone which was also dissolute by the carbonic acid. It is the form of Paleozoic Sedimentary Rock which mainly found in the Arizona or several caves. The limestone and sandstones are kinds of the Paleozoic Sedimentary rock (Agbogun, Al Hussein, 2013). The Amabel Dolostone which is the form of Paleozoic Sedimentary rock is found from the 545- 248 million years ago. It is one the evaluated rocks in the rock family which was change through different states of periods. The Amabel Dolostone is nowsays find in the Wiarton, Ontario, this is the greatest formation of caproack of the Niagra Escarpment. The formation of the rock was processed by the warm, sea salt which is located in the Michigan Basin. The presence of the Magnesium helps to destroy the microscopic fossils which fill with the minerals and in the area of Wiarton it is also known as Vugs which is mainly consists with the zinc sulphide and needed minerals (Liu et al., 2014). The Amabel Dolostone is uses as the building stones, crushed stones, flux stone and the products which are made by the dolomite lime. The collective stones from the Adair Marble Quarries are used in one of the famous building in U.S.A which is Canadian Embassy. This is one of the important rocks which are present in the Peter Russell Rock Garden which are used for the making of the buildings. References Agbogun, H. M. D., Al, T. A., Hussein, E. M. (2013). Three dimensional imaging of porosity and tracer concentration distributions in a dolostone sample during diffusion experiments using X-ray micro-CT. Journal of contaminant hydrology, 145, 44-53. Bonetto, S., Comina, C., Colombero, C., Pierre, F. D., Ferrero, A. M., Giordano, N., ... Vagnon, F. (2016). Study of the Mechanical Properties of a Conglomerate. Procedia Engineering, 158, 248-253. Duca, S., Alonso, E. E., Scavia, C. (2015). A permafrost test on intact gneiss rock. International Journal of Rock Mechanics and Mining Sciences, 77, 142-151. Ietto, F., Bernasconi, M. P. (2016). Evidences of fossil landslides from the Lower Pleistocene on the northwestern margin of the Mesima basin (southern Calabria, Italy). RENDICONTI ONLINE SOCIETA GEOLOGICA ITALIANA, 38, 65-68. Liu, H., Wang, B., Shu, L., Jahn, B. M., Lizuka, Y. (2014). Detrital zircon ages of Proterozoic meta-sedimentary rocks and Paleozoic sedimentary cover of the northern Yili Block: Implications for the tectonics of microcontinents in the Central Asian Orogenic Belt. Precambrian Research, 252, 209-222. Waldron, J. W., Locock, A. J., Pujadas-Botey, A. (2016). Building an Outdoor Classroom for Field Geology: The Geoscience Garden. Journal of Geoscience Education, 64(3), 215-230. Waldron, J. W., Locock, A. J., Pujadas-Botey, A. (2016). Building an Outdoor Classroom for Field Geology: The Geoscience Garden. Journal of Geoscience Education, 64(3), 215-230. Yorath, C., Gadd, B. (2017). Of rocks, mountains and Jasper: a visitor's guide to the geology of Jasper National Park. Dundurn.

Purchasing Power Parity Theory

Introduction As a result of various economic pressures it is a known fact that currency exchange rates vary over time. For example, in 1970 one US Dollar could be used to buy 627 Italian Lira or 3.65 German Marks. In 1998 both Italy and Germany were making preparations to make the Euro their common currency.Advertising We will write a custom research paper sample on Purchasing Power Parity Theory specifically for you for only $16.05 $11/page Learn More In this period one US Dollar could purchase 1,737 Italian Lira or 1.76 German Marks (Mankiw 2008, p. 707). From this data alone it is possible to grasp that the Dollar value dropped by over half when compared to the Mark while it increased almost twice when compared to the Lira. Economists often make models that attempt to explain these large and opposite changes. To understand these changes it is crucial to provide in depth information that indicates how the various economic forces work to cause the fluct uations. The Purchasing Power Parity (PPP) theory is one of the simplest theories used in explaining this behavior in exchange rates. This theory states that one unit of a given currency should be able to purchase the same quantity of goods in any part of the world. It has been suggested by several economists that the theory provides a description of the forces that affect exchange rates over a long duration (Mankiw 2008, p. 707). The PPP theory is founded on a principle known as the law of one price. This law states a good must sell at a single price in all locations. If this is not the case then the market leaves opportunities for profit unexploited (Mankiw 2008, p. 707). For example if coffee costs $4 in one location and $5 in another location people will begin to do business between the locations making $1 profit from each sale. This process of taking advantage of price difference of a product in different market is known as arbitrage (Mankiw 2008, p. 707). Based on this example the trade would increase demand in the source location and increase supply in the destination location. The forces of supply and demand would then act upon the price at the source and destination causing the price to be equal. There are two popular applications of the PPP theory each with its implications. The first application is the Absolute form of PPP based on the notion that in the absence of international barriers the consumers are expected to shift their demand to where the lowest prices are offered.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More This suggests the rice of a particular category of gods should be the same in different countries when compared using a common currency unit (Madura 2008, p. 214). Any shift in prices will cause a shift in demand based on the law of one price thus causing convergence of prices. However, the effect of tariffs, transport costs and s uch associated costs do not allow absolute PPP theory to be applicable. The second application is the relative form of the PPP theory which considers the role of market imperfections such as tariffs, transport, etc. This suggests that prices for the same category of products may not necessarily be the same in different regions. However, the theory suggests that the rate of change in price should exhibit similarity when market imperfections are considered and a common currency is used for measurement (Madura 2008, p. 215). Based on this estimation a specific product category price can be used to estimate exchange rates. Taking the example of the Big Mac Index, in July 2007 a Big Mac cost $3.41 in the US and 280 Yen in Japan. Based on this the expected exchange rate is 82 Yen to the Dollar whereas the actual rate was 122 Yen/Dollar (Mankiw 2008, p. 711). This example illustrates that the PPP theory is not always accurate for measuring the exchange rate though it can be used for estima tion. Empirical Literature on PPP In a period of over twenty years after the Bretton Woods system of exchange there are still debates over whether real rates of exchange are mean reverting (Caner and Kilian 2000, p. 12). It is also reported that most economists agree on some form of PPP and recognize its essence in construction various macro economic models. The statistical tests on the PP theory f mean reversion have to date produced conflicting results. As earlier stated the theory operates based on the law of one price. This law suggests that in time forces of supply and demand will always work to make a product price stabilize (Mankiw 2008, p. 707). This position has made this a case of interest that may be worth testing using the null hypothesis that real exchange rates are mean reverting. Though a failure to reject this null hypothesis is inadequate to convince skeptics of the existence of long run PPP such attest would provide compelling evidence against long run PPP (Caner a nd Kilian 2000, p. 12).Advertising We will write a custom research paper sample on Purchasing Power Parity Theory specifically for you for only $16.05 $11/page Learn More Tests to determine the stationarity of the PPP theory have failed to be proven and as such suggest that PPP theory can not accurately determine the exchange rate. This is because results mainly show many contradictions and spurious acceptance. The intuitive appeal of PPP notwithstanding it has been found that there is inconclusive evidence in support of the theory. This has been based on an analysis in countries with relatively low inflation rates in the post Bretton Woods era (Ender and Dibooglu 2004, p. 1). This has been observed in numerous co integration tests known as stage three tests that indicate exchange rates exhibit major fluctuations with a very slow rate of decay towards a long run average. This point is especially unfortunate since stage three tests appear very suitable f or the task. The stage three tests typically require no assumptions with regard to exogeneity. In addition to that these tests are based on a sensible implication and dynamic between price levels and exchange rates (Ender and Dibooglu 2004, p. 1). After conclusive testing using fur pairs of countries, it is reported that this theory is inadequate for calculation of exchange rates in industrialized countries. It has been suggested that the move by central banks to influence exchange rate movements may be the cause of the poor results (Ender and Dibooglu 2004, p. 16). In addition to this it has been observed that national prices levels are prone to increase more readily than to decrease. As a result prices and exchange rates show different adjustment patterns for positive deviations from PPP as opposed to the adjustment patterns for negative deviations (Ender and Dibooglu 2004, p. 16). The source of such behavior as stated before may be due to the role of central banks. Following the collapse of the Bretton Woods institutions the exchange rates are calculated using data from a relatively short span of time. The result has seen the use of the floating exchange rate and has caused much controversy on the use of the PPP theory (Pedroni 2001, p. 727). This is especially true since PPP theory is accurate over longer periods of time using much more data.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The use of co integrated tests is based on the realization that PPP is affected by several factors such as transportation, production costs, etc. which vary from one region to another. It is assumed that since there is a variation in these factors there is varying significance to these in different regions. This is what gives rise to the null hypothesis test to confirm relevance of the co integrated relationships (Pedroni 2001, p. 727). Despite the fact that these tests prove a relationship between these factors it is not adequate to give strength to the PPP theory. It is reported that in the period of two decades that has seen the use of the random walk in predicting foreign exchange rates, research has failed to produce models that can provide accurate predictions. The conclusion of many economists is that the standard models for estimation are inadequate. Others go further to say that the system is sound despite its poor implementation as a liner statistical model (Kilian and Tay lor 2001, p. 1). However some researchers argue that PPP test when carried out with respect to national prices and allowance for exchange rate shocks remains valid (Coakley, Flood, Fuertes and Taylor 2005, p. 273). This is because the exchange rate is influenced by the movement relative prices between two countries. Thus the changes in currency exchange are offset by price changes in the currencies of the countries. For this evaluation to be successful the data set should include heterogeneous countries. The relationship between the countries is crucial especially with regard to stock and growth rates (Head and Shi 2003, p. 1556). Any change in money stocks or growth rates is likely to lead to error in the results generated. There have been many tests that have applied co integration to PPP but the results provided are still inadequate to provide the theory required plausibility (Froot and Rogoff 1994, p. 23). Some researchers argue that the data produced is misleading due to sample bias in the studies. There has been resurgence in studies on PPP and it is promising to note that on the long term there appears to be a convergence to PPP values (Froot and Rogoff 1994, p. 39). However, it is crucial to note that in most studies where such convergence is evident rely on some fixed data. This has been accompanied by several studies on government expenditure and real exchange rate shocks. It is hoped that in time this data when applied with econometric techniques will allow researchers to determine how long it takes for convergence with PPP values to be realized (Froot and Rogoff 1994, p. 40). This is crucial given that PPP appears to play a central role in the calculation of exchange rates. With this in mind a clear understanding of the role of various shocks may prove fruitful in providing a solid method of estimating exchange rates. Testing PPP Theory US UK Base Year 2000 2000 Base Year Annual CPI Average 88.7 88.15 Target Year 2009 2009 Target Year A nnual CPI Average 111.3 109.875 Inflation 0.797 0.802 Percentage of Inflation 79.7 80.2 Devaluation 20.3 19.8 Target Year Expected CPI x 100 125.5 126.5 Target Year Actual CPI 112.9 110.7 (IMF 2010) In this example the null hypothesis being tested was whether the PPP theory can be used to accurately estimate the customer price index for two given countries. In such a test either the (PPI) Producer Price Index or (CPI) Consumer Price Index may be used. In this case the statistics offered data for the CPI and hence the CPI was used for the countries USA and UK. The CPI is an established average price for a given set/basket of goods within a give country (Ignatiuk 2007, p. 8). To calculate the inflation rate of the country the test required the selection of a base year and a target year. For this case the base selected was 2000 and the target was 2009. Using the average CPI for the base year and target year inflation is calculated. The result is multiplied by a hundred to get a percentage. The difference between this sum and 100 is the inflation that has been experienced during the range of years selected (Ignatiuk 2007, p. 8). Possible Reasons for the Results As stated above the rejection of the PPP null hypothesis is inadequate to reject the theory entirely. The problem is that PPP requires a very long term for mean convergence to be achieved and deviations in results and the PPP estimates is too persistent (Parsley and Wei 2004, p. 1). For the reason that exchange rates are prone to several short term factors it would appear that PPP is better suited for making long term foreign exchange predictions. There are several factors that are likely to influence the exchange rate and thus the PPP. Among these factors is the growth or the slump in the Gross Domestic Product (GDP). In addition to this are any potential interventions by the central bank in the economy (Dun and Bradstreet 2007, p. 21). In summary the behavior of a currency is similar to commo dity behavior in a market and is influenced by forces of supply and demand. An increase in demand for a specific currency due to trade increases leads to increases in the exchange price for that particular currency. Any increase in supply of the same currency also leads to decline in the exchange price for that currency (Dun and Bradstreet 2007, p. 21). Justification for the Estimation Method The theory of PPP is known to be based on the rule of one price (Mankiw 2008, p. 707). For this reason an accurate estimation of prices in various countries would require a product with a price that can be used as a standard price. IN this case the study selected the USD Big Mac Index. The selection of the Big Mac Index was considered favorable because for an accurate estimation of the PPP a basket of goods is necessary. In our case the Big Mac is a widely accepted product and is well suited as a basket of goods. The Big Mac produced by the McDonald’s franchise is made from known ingredi ents that can also help in assessment of a specific basket of goods (Parsley and Wei 2004, p. 3). Another crucial factor to consider in the application of PPP theory is the inflation rate of the countries being compared. Thus to perform an accurate PPP analysis countries that bear similar economic traits should be considered Head and Shi 2003, p. 1556. Inflation which is mainly the increase in cost of goods is influenced by many external and internal factors (Brigham and Houston 2009, p. 609). The rate of inflation will therefore affect the Consumer price index which is used in calculation of the PPP. With such changes accounted the PPP may be less inaccurate (Adams 2003, p. 98). According to the theory of PPP the increases in prices of goods is reflects the inflation rates in a country. The last point that justifies the use of the CPI to study PPP and exchange rates is due to the fact that baskets across different countries are not identical. This is because new products are added over time and quality of the ingredients varies from one region to the next (Parsley and Wei 2004, p. 2). The CPI is calculated based on a given set of goods that are available in all countries. Results In this test the CPI has been used to test the validity of the PPP theory with regards to accurate estimation of CPI data. The results of this test indicate that the CPI calculated using the PPP theory indicate some similarities but are significantly inaccurate based on the data in the CPI index (Parsley and Wei 2004, p. 23). This indicates that the PPP theory is inappropriate to estimate the CPI probably due to exclusion of variables in the calculation. In the course of the study some interesting facts are established. In similar studies that used the Big Mac Index it is established that a significant percentage of Big Mac Prices are attributable to non tradable components. In addition to that there is a more significant dispersion with regard to the price of the non traded componen t as opposed to the traded components (Parsley and Wei 2004, p. 23). This suggests that for greater accuracy of the PPP theory in calculation of CPI such factors must be considered. In addition to this it was also revealed that there was greater convergence for non traded inputs across the country as opposed to traded inputs (Parsley and Wei 2004, p. 23). It is hoped that through the study of PPP using non standard indexes such as the Big Mac Index, the evasive answers concerning the slow convergence rate may be unveiled. This is because the theory (PPP) has long been in use though its accuracy in short term situations has been found wanting. Conclusion In this report the discussion presented has provided some information on the Purchasing Power Parity theory. The theory states that the change in price levels in two countries determines the change in exchange rates (Ignatiuk 2007, p. 4). This is based on the principle of one price and argues that exchange rates can adjust with ease when there is movement of goods from one country to another (Neave 2002, p. 247). According to the theory when the prices of goods vary in regions there are opportunities created for arbitrage. This involves transfer of goods from the region with the lower price to the region with a higher price (Wu 2003, p. 252). It is assumed that through forces of demand and supply the prices should come to a mean value. Based on its efficiency in providing accurate estimates of foreign exchange rates some practitioners have argued that the theory presents a good means of estimating exchange rates. It has been observed that despite the fact that the theory does over a long period of time result in convergence of prices. It is unsuitable for estimation on a short term which would require more accurate analysis of econometric shocks that affect currencies. In addition to this the theory assumes similar goods packages which may not be readily available in all countries (Wessels 2006, p. 285) In this report a test was carried out to confirm whether the theory is accurate for estimation of exchange rates. To simplify the process the CPI was selected due to ready availability of long term data and reliability. The results from calculations to estimate the CPI it was found that the PPP theory was inaccurate. However, it should be noted that the rejection of this null hypothesis is inadequate in disapproving the PPP theory. The results merely indicate the inadequacy in exchange rate estimation. It is observed that the inaccuracy is as a result of the methods disregard to factors such as transportation, tariffs and the like (Burton, Nesiba and Brown 2009, p. 170). It is hoped that future work can provide a better integration of other factors to allow improved exchange rate estimation. References Adams, A 2003, Investment Mathematics, West Sussex, John Wiley Sons Limited. Brigham, EF Houston, JF 2009, Fundamentals of Financial Management, Mason, OH, South Western Cengage Learning. Burton, M, Nesiba, R Brown, B 2009, An Introduction to Financial markets and Institutions, New York, M. E. Sharpe Inc. Caner, M Kilian, L 2000, ‘Size Distortions of Tests of the Null Hypothesis of Staionarity: Evidence and Implications for the PPP debate ’, Research Seminar on International Economics, Michigan, Discussion Paper No. 44, pp. 1-30. Coakley, J, Flood, RP, Fuertes, AM Taylor, MP 2005, ‘Purchasing Power Parity and the Theory of General Relativity: The first tests’, Journal of International Money and Finance, Vol. 24, pp. 293-316. Dun Bradstreet 2007, Foreign Exchange Market, New Delhi, Tata McGraw Hill Publishing Company Limited. Ender, W Dibooglu, S 2004, ‘Long run Purchasing Power parity with Asymmetric Adjustment’, Southern Economic Journal, pp. 1-23. Froot, KA Rogoff, K 1994, ‘Perspective on PPP and Long Run Exchange Rates’, NBER Working Paper, No. 4952, pp. 1-57. Head, A Shi, S 2003, ‘A Fundamental Theo ry of Exchange Rates and Direct Currency Trades’, Journal of Monetary Economics, Vol. 50, pp. 1555-1591. Ignatiuk, A 2009, The Principle, practice and problems of Purchasing Power Parity Theory, Norderstedt, GRIN Verlag. IMF 2010, ‘Consumer Price Index Manual: Theory and Practice’, International Monetary Fund, 2010, retrieved from https://www.imf.org/en/Publications/Manuals-Guides/Issues/2016/12/30/Consumer-Price-Index-Manual-Theory-and-Practice-17165 Kilian, L Taylor, MP 2001,’Why is it so difficult to beat the Random Walk Forecast of Exchange Rates’, CEPR Discussion Paper, No. 3024, pp. 1-42. Madura, J 2008, International Financial Management, Mason, OH, Thomson Higher Education. Mankiw, N 2008, Principles of Economics, Mason, OH, South western Cengage Learning. Neave, E 2002, Financial Systems: Principles and Organization, New York, Taylor Francis E Library. Parsley, DC Wei, SJ 2004, ‘A Prism into the PPP Puzzles: The Micro Foundations of Big Mac Real Exchange Rates’, NBER Working Paper, No. 10074, pp. 1-27. Pedroni, P 2001, ‘Purchasing Power Parity Tests in Co integrated Panels’, The Review of Economics and Statistics, Vol. 83, No. 4, pp. 727-731. Peng, M 2008, Global Business, Mason, OH, South Western Cengage Learning. The Economist 2009, ‘Big Mac Index’, The Economist, February 2009, retrieved from https://www.economist.com/economic-and-financial-indicators/2009/02/04/big-mac-index Wessels, W 2006, Economics, US, Baron’s Educational Series. Wu, C 2003, Outline of International Price Theories, London Routeledge. Appendix Figure 1: Big Mac Index 2009 This research paper on Purchasing Power Parity Theory was written and submitted by user Axel Allison to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.