Exchange Rate, Wage Productivity and Consolidation of the Financial Statements
Comparative analysis of the 1,5 kW engines manufactured in Poland and the USA
Set of data needed to draw up the consolidated statement including the location of the holding company
Set of data needed to draw up the consolidated statement including the location of the holding company and proposed modification
Exchange rate theory Money unit = labour unit Thus exchange rate shows the relation between labour unit, which depends on wage productivity Selling prices depends mainly on market relations e.g. demand, supply etc.
EXCHANGE RATE THEORY Using the presented theory of money and money unit to the explanation of the changes of the exchange rate, the labour productivity issue observed in two countries must be considered and implemented to the exchage rate cathegory. The exemplification may focus on the economic systems of Poland and the USA. If we assume that the systems are almost equally productive, we can formulate the equation: Q – value of manufactured product, N – average amount of money paid for the labour unit, AP – average wage, ER – exchange rate
EXCHANGE RATE THEORY In practice the equal economic systems happen very rarely so we have to add the coefficient U to equalise both economic systems: Where U is treated as the quotient of Polish and American GNP quoted in USD per one worker. Using GNP per worker we can formulate the comparison of the labour cost in both countries:
EXCHANGE RATE THEORY Thus: The comparative analisys considering two countries without using coefficient U is useless. The relationships between the inflation rate and productivity determinate the price of one currency to the another.So: PDPP/USA – the inflation parity measured with the GNP deflator, WPPP/USA – the work productivity parity.
Exchange rate theory where: RWP* - real wage productivity abroad, RWP - domestic real wage productivity, ER0 – the last exchange rate value.
EXCHANGE RATE THEORY THIS IS THE WORK PRODUCTIVITY WHICH MAINLY DETERMINES THE CHANGES IN THE EXCHANGE RATE BETWEEN TWO COUNTRIES
“Purchasing Power Standard (PPS) shall mean the artificial common reference currency unit used in the European Union to express the volume of economic aggregates for the purpose of spatial comparisons in such a way that price level differences between countries are eliminated. Economic volume aggregates in PPS are obtained by dividing their original value in national currency units by the respective PPP. One PPS thus buys the same given volume of goods and services in all countries, whereas different amounts of national currency units are needed to buy this same volume of goods and services in individual countries, depending on the price level”.
Set of data needed to draw up the consolidated statement including the location of the holding company based on the PPS unit
CONCLUSIONS • Exchange rate is not applicable in converting the value of manufactured goods , • To convert value of assets, PPS ratio is applicable.