In which I go to the tape... (original) (raw)

The answer to the question is that he shouldn't buy the bracelet in either location.

I believe the school solution is to buy the bracelet in Switzerland. This is assuming that a 4 to 1.5 exchange rate is accurate, and there are no additional taxes or fees in either location. Assuming both hold true, the easiest thing to do is to think about the answer in terms of the opportunity cost (in numbers of International Herald Tribunes (IHTs) you are giving up) to buy the bracelet. In Switzerland, you could have bought 25,000 IHTs (100,000 Franks / 4). In Madrid, she's paying the equivilent of 26,666 (40,000 / 1.5). Meaning that the cost is higher in Madrid than in Switzerland, since you are giving up four years of the paper.

The problem is that the assumptions don't really hold. You have to assume the cost of the IHT doesn't really reflect current exchange rates; they are unlikely to change that price more than maybe once a year, so you are dealing with a pretty sticky and dated rate (indeed, according to Google, right now 1.5 euro equals 1.86 Swiss Franks, which is a pretty big difference). Moreover, while our friend Raffa may be shopping duty-free in Geneva, assuming he's Spanish he's liable to pay more taxes in Spain. So we really still don't have the proper data to work with, but given the exchange rate issue alone the bracelet is cheaper in Spain.

Which leads me to the broader point. If the minor difference in the price of the bracelet makes that big a difference to you, maybe blowing 40,000 euro, 100,000 Swiss Franks, or a similar amount on an impulse purchase at the airport is not the smartest idea.