Switzerland Country Analysis - Assignment Example

In this regard a brief consideration of devaluation and revaluation of currency as a combat measure against strong or weak currency have been taken into account. Moreover the law of one price along with PPP has also been considered. The short fall of Big Mac index, in order to project as an accurate measurement of price level has also been discussed. The PPP of the concerned country has been measured and compared with the exchange rate of Switzerland with that of USD (US Dollar). At the end there is a brief consideration of the evolution of Swiss monetary system with special emphasis on present exchange rate arrangements and if that has anything to do with the recent financial crisis.

The pivotal point of this paper revolves around the fact that whether exchange rate has anything to do with business environment? Its correlation with recent financial crisis and the inter relation between per capita purchasing power parity, exchange rate of Swiss currency with that of Euro and USD. Exchange rate and their influence on the business activities The common notion that business activities are subject to turbulent time encounters a pause regarding exchange rate. Exchange rate fluctuations often leave severe impact on business activities and that for obvious reasons.

A weak currency leads to decline of the price of the exports and decline in price obviously leads to a rise in demand of that particular product. Eventually that product occupies lion’s share of the global market. On the other hand a strong currency weakens the profit margin of the concerned country. If a company sells in a country with strong currency and pay the workers that belongs to it in weaker currency obliviously it ends up as profit maker. If a government lowers the value of its currency thus makes it weak then it is reckoned as devaluation and the opposite is called revaluation with exactly reverse consequences.

This implies movement of exchange rate in an unfavorable way is detrimental to the managers of both the countries especially if there is a price war.. The unpredictability of exchange rate only adds to the risk of business environment and that ends of as a catastrophic consequence (Hollensen, 2009). The law of one Price The law of one price stands for “an identical product must have an identical price in all countries when price is expressed in a common –denominator currency. For this principle to apply products must be identical in quality and content in all countries, and must be entirely produced within each particular country” (Hollensen, 2009, p.203) This particular theory of pricing falls short of one common logic that is extremely relevant in modern world; the law of absolute and comparative advantage.

In this era of globalization the law of one price indicates to self sufficiency and entirely ignores the importance of international trade. However in order to overcome this major bottleneck Big Mac Pricing has been resorted. (Hollensen, 2009) The Big Mac Price Index and its shortfall The Big Mac Price Index has derived its name from McDonald’s Big Mac. McDonald has one of the largest restaurants over the world and Big Mac is produced and sold in over 120 countries. Assuming that the company sticks to the exact material and quality, the concerned product has occupied a place where it can be