Transcript Exchange Rate, Wage Productivity and Consolidation of the

Exchange Rate, Wage
Productivity and
Consolidation of the Financial
Statements
Comparative analysis of the 1,5 kW engines
manufactured in Poland and the USA
TAMEL
Power 1,5 kW
Sg 90 L-4
B3
380 V
50 Hz
Insulation class F
1200 rpm
BALDOR ELECTRIC
Power 1,5 kW
4 Pole
B3 Mounting
380 V
50 Hz
Insulation class F
1160 rpm
SELLING PRICE:
312,32 zł
$ 380
AFTER TRANSLATION (CONVERSION):
$ 78
1520 zł
Set of data needed to draw up the
consolidated statement including the
location of the holding company
Case no
Quantity of
engines in
Poland
Quantity of
engines in
the USA
Location of the
holding
company
Consolidated amount
1
2
0
USA
624 zl/4 =
= $156
2
1
1
USA
312 zl/4 +
+ $380 = $458
3
0
2
USA
$760
4
2
0
Poland
624 zl
5
1
1
Poland
312 PLN + $380*4=
= 1832 zl
6
0
2
Poland
$760 * 4 = 3040 zl
Set of data needed to draw up the
consolidated statement including the
location of the holding company and
proposed modification
Case no
Quantity of
engines in
Poland
Quantity of
engines in the
USA
Location of the
holding
company
Consolidated
amount after
modification
1
2
0
USA
2  $380  $760
2
1
1
USA
2  $380  $760
3
0
2
USA
2  $380  $760
4
2
0
Poland
2  312zl  624zl
5
1
1
Poland
2  312zl  624zl
6
0
2
Poland
2  312zl  624zl
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:
QUSA (Q  N )USA
APUSA
 $ 


 ER

QP
(Q  N ) P
APP
 PLN 
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:
QUSA 1
(Q  N )USA APUSA
 $ 1
 

 ER

QP U
(Q  N ) P
APP
 PLN  U
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:
APUSA
 $  PKBRCUSA [$]
 ER

APP
 PLN  PKBRC P [$]
EXCHANGE RATE THEORY
Thus:
 $  PKBRCUSA [$]
APP  APUSA  ER

 PLN  PKBRC P [$]
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
 PLN 
ER

 $  WPPP /USA  ER0 [$ / PLN ]
PDPP/USA – the inflation parity measured with the GNP deflator,
WPPP/USA – the work productivity parity.
Exchange rate theory

RWP
ER  ER0 
RWP
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”.
PURCHASING POWER STANDARD
312 zl
PPS 
 0,82 zl / $
380$
Set of data needed to draw up the
consolidated statement including the
location of the holding company based on
the PPS unit
Case no
1
Quantity of
engines in
Poland
2
Quantity of
engines in
the USA
0
Value according to
IAS 21
$208
2
1
1
$484
3
0
2
$720
Consolidated amount
based on PPS unit
624 zł1,1538 =
$719,97
312zł1,1538+$360 =
$719,99
$720
CONCLUSIONS
•Exchange rate is not applicable in
converting the value of manufactured
goods ,
•To convert value of assets, PPS ratio is
applicable.