Thursday, January 18, 2007

This will be of interest to both iPod nerds AND economics nerds

Reuters: Apple's iPod takes on global currency markets

One of Australia's biggest banks, the Commonwealth Bank , has used the latest version of Apple's music player -- the slimline Nano -- to compare global currencies and purchasing power in 26 countries.
Along the lines of the Big Mac index launched 20 years ago by The Economist magazine, the survey prices the 2GB Nano in U.S. dollars and found Brazilians pay the most for an iPod, shelling out $327.71, well above second-placed India at $222.27.
Canada was the cheapest place to buy a Nano at $144.20, while Australia ranked 19th at $172.36, cheaper than Germany ($192.46), France ($205.80), South Korea ($176.17) and China where the machine is manufactured. The U.S. was fourth cheapest at $149.
"Interestingly, especially with freight costs close to zero, China is middle ranked in terms of global prices at US$179.84," Craig James, the Chief Equities Economist at Commonwealth Bank, told Reuters.
Purchasing power parity surveys compare the prices of goods in different countries and at their simplest level can help show whether one currency is undervalued against another.

Sounds like a fantastic yardstick to seek out arbitrage opportunities in the Foreign Exchange market, no?

Unfortunately, like a lot of really cool economic theories, it fails to factor in a key variable: reality.

However, the results could [my sarcastic emphasis] be influenced by different pricing policies that Apple might apply in different parts of the world, James said.

Oh, economics, if only the world was as mathematically exact as you are.

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