"THE TEST OF A GOOD THEORY IS HOW WELL IT STANDS

The test of a good theory is how well it stands up in the real world

The test of a good theory is how well it stands up in the real world

Introduction

The budgetary control system produces positive as well as negative effects on organization, workers as well as on the managers. We shall now discuss how budgetary control and costing system effects an organization and how it may improve or deteriorate an organization's working. (Maddox,1999)Budgetary control is the establishment of budgets relating the responsibilities of the executives to the requirements of policy, and the continuous comparison of actual with budget results, either to secure by individual action the objective of that policy, or the basis for its revision.

Background

Economists employ an extensive range of computations both to measure and estimate universal economic conditions. The majority of these facts are accessible monthly, and most, with the extraordinary exemption of interest rates which are offered with seasonal alterations.

To predict the foreign exchange rates, economists and several financial analysts employ several theories of international finance namely; Purchasing Power Parity Theory (PPP), Interest Rate Parity Theory (IRPT), International Fisher Effect (IFE) Fisher Effect, Expectations Theory. These theories are more popularly known as the “parity conditions”, which explain that law of supply and demand affects the GDP. Moreover, such theories assumed that people are active determinants of the changes on the supply and demand in the market. Each of the theories mentioned recognizes the law of one price that pushes the change of supply and demands. (Guajardo, Salmon, A., 2000)

Empirical Evidence

The law of one can best be understood given the following scenario: suffice it to say that there are several different markets that sell a certain product. A rational consumer given many choices will select the market that will give him or her with the cheapest possible price for the product. By buying in a certain store, he or she in effect increase the demands for the store and at the same time decreases the demands for other markets.

Furthermore, real GDP are determined by several other factors, which includes the relative purchasing power across countries, domestic and interest rates, barriers to trade, and many other elements. Influence of any of these factors varies across time.

Purchasing Power Parity explains that. This implies that the exchange rates between these two countries should equate the ratio of the two countries' price level of a constant of goods and services. The theory assumes that the actions of importers and exporters, motivated by cross-country price differences, induce changes in the spot exchange rate. In another vein, PPP suggests that transactions on a country's current account affect the value of the exchange rate on the foreign exchange market. This contrasts with the interest rate parity theory, which assumes that the actions of investors, whose transactions are recorded on the capital account, induce changes in the exchange rate. PPP theory is based on an extension and variation of the "law of one price" ...