Problem 1.1 Comparing Cheap Dates Around the World

Comparison of prices or costs across different country and currency environments requires the translation of the local currency into a single common currency. This is most meaningful when the comparison is for the identical or near-identical product or service across countries. Deutsche Bank has recently started publishing a comparison of cheap dates -- and evening on the town for two to eat at McDonald's, see a movie, and drink a beer. Once all costs are converted to a common currency, the U.S. dollar in this case, the cost of the date can be compared across cities relative to the base case of a cheap date in USD in New York City.

After completing the table below, answer the following questions.

a. Which city in the table is truly the cheapest date?

b. Which city in the table is the most expensive-cheap date?

c. If the exchange rate in Moscow on the Russian ruble (RUB) was 0.04200, instead of 0.0283, what would be the USD price?

d. If the exchange rate in Shangahi was CNY 6.66 = 1 USD, what would be its cost in USD and relative to a cheap date in New York City?

Cheap Date in

Exchange

Exchange Rate

Cheap Date in

Relative

Country

City

Local Currency

Rate Quote

7 April 2014

In USD

to NYC

Australia

Sydney

AUD 111.96

USD = 1 AUD

0.9290

104.01

112%

Brazil

Rio de Janeiro

BRL 135.43

USD = 1 BRL

0.4363

Canada

Ottawa

CAD 78.33

USD = 1 CAD

0.9106

China

Shanghai

CNY 373.87

USD = 1 CNY

0.1619

France

Paris

EUR 75.57

USD = 1 EUR

1.3702

Germany

Berlin

EUR 76.49

USD = 1 EUR

1.3702

Hong Kong

Hong Kong

HKD 467.03

USD = 1 HKD

0.1289

India

Mumbai

INR 1,379.64

USD = 1 INR

0.0167

Indonesia

Jakarta

IDR 314,700

USD = 1 IDR

0.0001

Japan

Tokyo

JPY 10,269.07

USD = 1 JPY

0.0097

Malaysia

Kuala Lumpur

MYR 117.85

USD = 1 MYR

0.3048

Mexico

Mexico City

MXN 423.93

USD = 1 MXN

0.0769

New Zealand

Auckland

NZD 111.52

USD = 1 NZD

0.8595

Phillipines

Manila

PHP 1,182.88

USD = 1 PHP

0.0222

Russia

Moscow

RUB 2,451.24

USD = 1 RUB

0.0283

Singapore

Singapore

SGD 77.89

USD = 1 SGD

0.7939

South Africa

Cape Town

ZAR 388.58

USD = 1 ZAR

0.0946

United Kingdom

London

GBP 73.29

USD = 1 GBP

1.6566

United States

New York City

USD 93.20

1 USD

1.0000

United States

San Francisco

USD 88.72

1 USD

1.0000

Source: Data drawn from The Random Walk, Mapping the World's Prices 2014, Deutsche Bank Research, 09 May 2014, Figures 30 and 32, with author calculations. 'Relative to NYC' is calculated as = Cheap Date in USD/93.20.

Note: The cheap date combines the local currency cost of a cab ride for two, two McDonald's hamburgers, two soft drinks, two movie tickets, and two beers. In 2013 Deutsche Bank had included sending a bouquet of roses in the date, but did not include that in the 2014 index, making the two years not directly comparable.

a. The truly cheapest cheap date could be had in _______________________, at only _____% of what it costs in New York City.

b. The most expensive-cheap date would be _________________ at ____________% of the cost of New York City.

c. If the Russian ruble was actually trading at 0.042 instead of 0.0283, Moscow would be ___________________% of the cost of a cheap date in New York City.

d. If the exchange rate in Shangahi was CNY 6.66 = 1 USD, a cheap date would cost USD _____________, only _________% of the cost in New York City.