Business - For emerging market the main factors which...

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Define Purchasing power Parity. What is the importance of purchasing power parity when you are trying to establish value for a company located in an emerging market? Answer: Purchasing power Parity theory is a condition in which the purchasing power of a product is same in two different countries. Purchasing power Parity (prices of the goods between two countries) reflects the exchange rate between the countries. If the value of 1 pound is 5 US dollar then the product whose price is 1 pound in England can be purchased in 5 dollar in US.
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Unformatted text preview: For emerging market the main factors which should be consider are exchange rate, interest rate, inflation etc and in emerging market companies cash flow is denominated in several currencies. In emerging market PPP is important because most of the company determine its revenue in dollar where as many of expenses such as labour expanses, purchasing expenses etc accord in its domestic currency. For balancing it is important to use PPP theory and notice the exchange rate which reflects the expenses or some time income of the company....
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