The aim of this paper is to discuss the issue with the currencies and particularly whether they are at their current level. To analyze this problem in this course we should use the Big Mac index, which is used for such evaluations and additionally we have to choose a product and compare its prices in at least 10 countries, where it is available. The product which is going to be used in this coursework to be analyzed whether the currencies are at their current level is Apple iPad Air Silver 128GB. The currencies from the following eleven countries will be used for the analysis: United States (base country of the product), United Kingdom, Japan, Denmark, Germany, Russia, Poland, Australia, Sweden, Hungary and China.

Firstly we had to find the prices of the product in all countries and convert the amounts into dollars, because the base country of the product is United States, but before converting all numbers all additional taxes as VAT, goods and services tax, transactions costs and etc. should be deduct from the amounts of the product. The next parts are to evaluate the implied PPP rate and under/over percentage against the dollar, which will show us in which countries the product is under or over valuated.

Home

The chosen product for this coursework is Apple iPad Air Silver 128GB, because is a good candidate for the application of the law of one price. Burdett & Kenneth (1983) claimed that a good or services should be sold for a same price in the different countries. The law of one price is a form of purchasing power parity and its main task is as an arbitrage to eliminate the price difference in the different countries. In cases where we can meet substantial distinction of the prices of a product, according to Lamont & Thailer (2003) we can buy the product from the country where is cheaper and sell it in the country, where is more expensive. This will continue due to the moment when purchasing power parity holds and the prices are equalized. In a world of perfect competition “the unique price equals the marginal costs for all suppliers” (Brauer, 2003, p. 13) and the mark-up profit is always equal to all sellers and “goods market arbitrage” tries to regulate the market and mainly not some producers to set higher price. The following table shows us the prices of the product in the chosen countries.