第7章价格与汇率变动.pptVIP

Engineering Economy Chapter 7: Price Changes and Exchange Rates The objective of Chapter 7 is to present how inflation/deflation is dealt with in engineering economy studies. Our assumption of constant prices for goods and services is generally not the case. General price inflation increases the average price of goods and services over time, while deflation results in a decrease in average prices (certainly a more rare circumstance). Changes in the consumer price index (CPI) and producer price index (PPI) are used as surrogate measures of inflation. The rate of change can be found, in either case, from the formula below. The oil refinery business has been in the news a lot. The general inflation rate for this industry for the 2007 calendar year can be found using the producer price index (from ). There are a lot of terms to know! Actual dollars (A$), also known as current, nominal, or inflated dollars, represent cash at the time it occurs. Real dollars (R$), also known as constant dollars, are dollars expressed in terms of the same purchasing power relative to a particular time. General price inflation (or deflation) rate (f), perhaps peculiar to particular business environment. More terms to know. Market (nominal) interest rate (im) is the money paid for the use of capital, adjusted for anticipated general price inflation. Real interest rate (ir) is the money paid for the use of capital, not adjusted for anticipated inflation (the inflation-free interest rate). Base time period (b) is the reference or base time period used to define the constant purchasing power of real dollars. Actual dollars in year k can be converted into real dollars as of any base period by the relationship below. It is important to use the correct dollar-type/interest-type combination. Otherwise, the results will be biased. When cash flow estimates are made using actual dollars, A$, the correct rate to use is the market interest rate, im (which is adjusted for inflation). When cash flow e