Question
Hi tutor, instructions are below. All i need you to do is look over the instructions and example then look at my work in the
Hi tutor, instructions are below. All i need you to do is look over the instructions and example then look at my work in the picture. let me know if i did things correctly so far or if i did something wrong let me know. Along with that, I would like you to help me do the parts I left blank and show your work for the change rate please. Thanks so much, ill give you good rating.
For the following activity, you will be using the websitenumbeo.com. This website provides current information on world living conditions in countries around the world. You can also use the Google currency converter.
- Select a country whose prices you will be comparing to Canada.
- make a "basket" of 5 items. Try to choose items that are available in both countries (or at least ones that are similar). Record the prices in each country's currency, and find the total of the basket in each country's currency.
- Record the prices in Canadian dollars as well.
- Calculate the implied purchasing power parity:
Value of the foreign basket in foreign dollars
Value of the Canadian basket in Canadian dollars
Compare the purchasing power parity to the current exchange rate. Recall that for purchasing power parity to exist, the exchange rate and the purchasing power parity ratio must be equal.
Here's a simple example comparing the cost of living using only one product(prices were obtained using August 2017 figures):
The price of a Coke in Canada was $1.99 C.
The price of a Coke in Germany was ? 2.08.
The implied PPP was 2.08/1.99 = 1.05
The actual exchange rate was $1 = ? 0.67.
(1.05 - 0.67)/0.67 X 100 = 56.72% overvalued against the Canadian dollar.
Thus, the euro was overvalued against the Canadian dollar by approximately 57%.
Analyze your data and reflect on your findings. In which country was the price of the basket of goods higher? If there was disparity, what factors do you think might have caused it?
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