Customising
exchange rates
Customising the products and services within the
index
Customising
exchange rates
In order to be able to
construct a cost-of-living index, the prices in base
and destination cities have to be put into a common
currency (the US dollar) before they can be compared.
As a default the index figures are calculated using
the exchange rate which prevailed during the week in
which the survey was conducted.
In countries where
currencies are relatively stable, using the
survey-date exchange rate generally produces accurate
results. However in some countries, currency
devaluations can occur with a suddenness that can
produce sizeable changes in cost of living index
numbers literally overnight. If the devaluation is
massive enough, it is quite possible that an index can
abruptly move from a positive position to a negative
one.
The EIU Worldwide Cost
of Living site therefore enables you to use up-to-date
exchange rates to calculate the index. Just click on
the Use most recent exchange rate button in the
exchange-rate customisation area beneath the index
table and then hit the Recalculate button. The system
will immediately recompute the indices to reflect the
latest exchange rates for each country to the US
dollar. Exchange rates are refreshed once a week.
You should bear in
mind, however, that extreme exchange-rate volatility
may be coupled with equally dramatic changes in price
levels. Updating the exchange rates does not have an
impact on the published local-currency price data,
which are collected twice a year. So to the extent
that a devaluation would have an impact on the
local-currency price of imported goods, for instance,
changing exchange rates is only an approximation of
changes in the cost of living.
If you need to use
company exchange rates to make the index calculation,
then you can do so by clicking on the Enter custom
exchange rates against the US dollar button. You can
then input your company's exchange rates in the boxes
on the right of the screen and hit the Recalculate
button to see how the indices are affected.
Please note that if you
do choose another exchange rate, be it the latest
rates or a customised rate, and then proceed to the
salary calculator, your last choice is the one which
will be used as a default by the calculator (unless
you have previously saved settings on the calculator,
in which case these will override your choices on the
indices page).
Customising the products and services within the index
Some firms take care of
utility costs for their overseas employees. Others
furnish company cars to expatriates and thus cover
most ordinary transportation expenses. For these
firms, it is advisable that the utility and/or
transportation components of the Cost of Living index
be removed or modified in order to better reflect the
company's remuneration policy. The compensation
policies of individual companies may similarly make it
necessary to remove other items used in the index
calculation.
For that reason, the
EIU Worldwide Cost of Living site allows you to remove
entire categories of products, or individual products
within a given category. By unchecking the box beside
each product and category name in the table of price
data, you can remove these products from the
calculation. If you then click on the Recalculate
button located at the top or bottom of the price data
table, the page will reload with the index
recalculated to reflect the new components. To
reinstate products into the index calculation, just
recheck the appropriate box and click on the
Recalculate button again. Whatever changes you make,
the most recent version of the index will be the one
applied by the site's salary calculator.
Remember, however, that
the more products you remove from the calculation, the
smaller the sample of products becomes upon which your
index is being calculated. Smaller samples are prone
to higher variation and are less representative of the
overall picture.
Some products and
services, such as housing rents, are not included in
the cost-of-living index as a matter of course,
because they are not normally defined as part of an
expatriate's spendable income. These products do not
have a check box beside them.
If you want to save
your customised index settings so that they are still
in place when you next log in, click on the Save
settings button at the foot of the price data table.
Click on the Clear settings button to erase your
changes. |
