I am a student researching 3D scanning service and developing it for a specific centre in my country, where the service does not exist in the way it does in USA. I know the price for the service in US. My supervisor suggests that the US prices can be converted to local prices by means of some economic indexes or tools. None of us is an economist and I don't really see how it can be done. Is there really a way to do this?
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2 Answers
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Converting the amount from USD directly to the domestic currency using market exchange rates is an easy solution, but does not take into consideration the PPP (purchasing power parity) between the countries.
One possibility is to use instead the PPP rates, which are rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries.
The date can be obtained from: https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm#indicator-chart, from which you can calculate the price of the service, instead of using a currency converted based on market prices. On the same link you can check for the differences between the PPP rates and the market exchange rate, which in some cases are substantial.
One limitation should be pointed. The PPP rate is not calculated for a specific kind of service, but for a basket of products and services. However, this is a limitation that also affects the market exchange rates.
Therefore, at least in my opinion, this method allows to better capture the differences in purchasing power between the countries, and allow you to apply a more reasonable and justifiable price.
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$\begingroup$ Hi, that sounds just right! Unfortunately in the link there is no information on Armenia. In your opinion which of the following two sources is more suitable to use - the numbers are somewhat different. 1. knoema.com/PWT2011Jun/… 2. quandl.com/data/ODA/… Thank you! $\endgroup$ Jun 20, 2017 at 19:29
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$\begingroup$ And so if the price in USA is, say, 200$ and PPP for Armenia is 200 AMD/USD, then the converted and adjusted price is 40 000 AMD? $\endgroup$ Jun 20, 2017 at 19:36
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$\begingroup$ The data from Quandl was obtained from the African Development Bank, which is a supranational source. The one from Knoema comes from the University of Pennsylvania, which I honestly prefer more. However, the last is only available until 2011 (which may explain the differences that you mention). However, since now I know the country, my suggestion may be more accurate. Therefore, I think in here you will find what you need data.worldbank.org/indicator/PA.NUS.PRVT.PP?locations=AM $\endgroup$– user13650Jun 20, 2017 at 19:42
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$\begingroup$ Correct, regarding your conversion $\endgroup$– user13650Jun 20, 2017 at 19:44
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This can be done quite easily using an online currency converter.
Oanda is a reliable one which will have up to date prices of currency. Simply select U.S. currency in the box in the left, and the currency of the country you are in in the box on the right. Then type the price of the service you are using in the box on the left. The box on the right will now display that price in the currency of your home country.
Link: https://www.oanda.com/currency/converter/
Something that you need to keep in mind is that there may be fees associated with converting the money and transferring it abroad. You'll need to work out a payment strategy with the company you are contracting to figure out how they want payment and what type of fees you will be incurring.
