How To Manage Spending In A Different Currency When Going Abroad For Masters

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[{"type":"txt","id":"rich_1499105869657","data":"Moving countries is no easy task. Uprooting your contacts, infrastructure and growth and transferring them into an alien land is an uphill battle. Unmistakably, one of the biggest hurdles in that battle is the finance part of it all. Converting your funds from one currency to another will almost always burn a hole in your pocket. Consider this, as a student going from India to America, we have to convert our Indian rupee into the American dollar for immediate disposal in the country. Or in the setting where tuition fee has to be paid by our guardian or donor to the university, the tentative cost of education keeps changing because of the constant change in the relation between the rupee and dollar. <\/p>Purchasing power parity is a theory in economics which explains the worth of the money that you\u2019ve accumulated not by the face value or the number of commas it has but by the purchasing power or purchasing capability of the money you possess. This theory is in turn based on the \u201claw of one price\u201d. For example, if your Rs. 120 are good for purchasing a basket of goods or services in India, and you get the same services for $2 in USA, with the market conversion of dollar to rupee is 1 dollar = 60 rupees, then the system is in parity. That is, the cost of a basic commodity equated in India costs the same in another country, in this case, America. <\/p>Lets assume that the cost of doing the task or buying the commodity in ameirca is more than $2, let\u2019s assume its $4 for something that costs $2 in India, but the conversion rate remains the same ($1=Rs. 60) which means that the cost of the commodity is twice in America as compared to India. This would trigger more and more businesses and individuals to purchase said commodity in india as compared to America. This would create more demand for the Indian currency, increasing the currency\u2019s standing and stability in the global market. By the improvement in economic importance of the Indian currency, exchange rates with the American dollar would plunge. I am no economics expert so I can\u2019t speculate to what extent these exchange rates would drop. But this is in an ideal system, where the market responds very rapidly to changing purchase methods, where business entities pursue the cheapest option no matter what. This is not sustainable or realistic though, in the real world market place, currencies are undervalued or overvalued based on the difference between the exchange rates and purchasing power of the money. <\/p>Organization of Economic Cooperation and Development (OECD) and a few other organizations tabulate charts specifying the comparison between the two variables. However, they should not be taken as \"definitive\". Different methods of calculation will arrive at different PPP rates. <\/p>"},{"type":"img","id":"img-uid-1499105918684","data":"595a8be49f525"},{"type":"txt","id":"rich_1499105925194","data":"One of the biggest and arguably the most popular index for PPP was the Big Mac index popularized by The Economist in 1986. the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services, in this theory the Big Mac by McDonald\u2019s, in any two countries. Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies.  <\/p>India ranks in the top 15 most undervalued economies in the world, sitting in a state slightly better than Hong Kong and Sri Lanka. Egypt is the most undervalued economy on basis of this Big Mac theory, while Switzerland is the most overvalued market. <\/p>So, when you step into the United States of America it is important to understand that your money\u2019s worth. Don\u2019t go buying stuff because it costs lesser number of notes as they do in India\u2026and converting the cost of everything you see in the market place with a price tag in dollars, into rupees isn\u2019t exactly healthy either. <\/p>"}]

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