# W8.1_AEP_Cow saving for Eid al-Adha

Problem identification

Performing sacrifice is something that is highly recommended for every wealthy Muslim. Allah has determined camels, oxen, goats and sheep as sacrificial animals. A goat or a sheep slaughtered on Eid al-Adha feast is sufficient for a family. A Camel or a cow can be sacrificed for the seven people in associate. Livestock prices increasing every year, influenced by market supply and demand, import policies, national food security enhancement programs, as well as inflation. According to 2013, a unit price of a live cow was Rp47 000 per kg, while in 2009 price only Rp30 000 per kg. In today’s rupiah, the price in 2009 is equal to Rp36 000. Purchase power of Rupiah to the livestock prices is decreasing.

Development of alternatives

The livestock for sacrificial animals is priced in Rupiah if purchased in Indonesia. But in order to have sufficient Rupiah, we can save some money in foreign currency such as US Dollar, or in Gold (either measured in grams or in Dinar. Gold Dinar is measured at 4,25 grams gold with a purity of 91,7%).

Development of prospective outcomes

From statistical data between 1980 and 2013 we can plot the price of cow per kg both in rupiah and USD. In addition, we also plot the price of cow per kg in Gold. Given the fact that inflation affects the purchasing power of money, and then the price is formulated into the purchasing power in 2013.

Picture 1. 1980-2013 historical price of cow per kg in IDR

Picture 2. 1980-2013 historical price of cow per kg in USD

For the use of analysis, 2000-2013 data price per kg in Rupiah and Dollar are converted to gold unit per kg. The plotted shown in Picture 3 and 4 as below.

Picture 3. Gold gram per kg of cow in Rupiah

Picture 4. Gold gram per kg of cow in US Dollar

Selection of the acceptable criteria.

Either purchasing gold in Rupiah or US Dollar which is gives the most purchasing power of cow saving for Eid al-Adha.

Analysis and comparison of alternatives.

Develop three projection curves for each correlation assumed as best case, worst case and most likely for of P90 level using Delphi Technique:

Table 1. Representative Gold gram per kg of cow in Rupiah

Table 2. Representative Gold gram per kg of cow in US Dollar

Using the value of P90 in Table 1 and Table 2, if we want to buy a 400 kg of cow in year 2014 will be worth of 37,02 grams of gold-Rupiah, and 37,50 grams of gold-Dollar. While in year 2018 will be worth of 85,96 grams of gold-Rupiah and 94,56 grams of gold-Dollar. The delta between gold-Rupiah and gold-Dollar shows that we provide less grams of gold to purchase the cow in Rupiah than in Dollar. This would indicate that the purchasing power of US Dollar is less than Rupiah.

Selection of the preferred alternative

Saving in gold for cow for the next Eid al-Adha is preferred as it is the only stable currency. Exchanging in Rupiah is preferred to provide enough gold as it has the most purchasing power than in US Dollar.

Performance monitoring and postevaluation of results

It is the fact that Rupiah and US Dollar have lost its purchasing power up to 200% in just 30 years. Saving in USD for short term have the same purchasing power as saving in Rupiah. But saving in gold is recommended to exchange for our needs in Rupiah than in US Dollar. However, the condition of world’s politics and the market supply and demand for gold, can also affect its sale price in various currencies.

References

ANALISIS HARGA DAGING SAPI (PART 2) ~ Daging Sapi. (2012, November). Retrieved from http://analisisdagingsapi.blogspot.com/2012/11/analisis-harga-daging-sapi-part-2.html

Bank Sentral Republik Indonesia (n.d.). LAPORAN INFLASI (Indeks Harga Konsumen). Retrieved from http://www.bi.go.id/web/id/Moneter/Inflasi/Data+Inflasi/

Inflation Calculator | Find US Dollar’s Value from 1913-2013. (n.d.). Retrieved from http://www.usinflationcalculator.com/

Iqbal, M. (2013, January 7). Harga Emas : Tidak Terlalu Tinggi dan Tidak Terlalu Rendah…. Retrieved from http://goo.gl/WImoHB

Permana, A. (2013, October 1). W11.2_APE_Presidential Cost in Indonesia | Simatupang AACE 2014. Retrieved from https://simatupangaace2014.wordpress.com/2013/10/01/w11-2_ape_presidential-cost-in-indonesia/

Setiawan, N. (2006, March). Perkembangan Harga Daging dan Telur Ayam 1980 – 2004.Majalah Poultry Indonesia1(2006).

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). Chapter 8 / Price Changes And Exchange Rates. In Engineering economy (15th ed., pp. 344-369). Boston: Prentice Hall.

The World Bank (2013, March). PERKEMBANGAN TRIWULANAN PEREKONOMIAN INDONESIA. Retrieved from http://www.worldbank.org/content/dam/Worldbank/document/EAP/Indonesia/IEQ-MARCH-2013-BHS.pdf

Filed under Afriandi EP, Week 08

### 7 responses to “W8.1_AEP_Cow saving for Eid al-Adha”

1. OK, NOW you’ve got it, Pak Afriandi!!!

My only concern (and the only reason you only got 4 stars instead of 5) is why such a big spread between the Best Case, Worst Case and Most likely curves? Remember me explaining that the larger the spread, the RISKIER the number? Why didn’t you calculate the VARIANCE so we could see exactly HOW risky this spread is? Remember from our F-2-F kick off session that when the SPREAD (Variance) is large, that we should go to the next higher risk level? In other words, for a spread this big, I would NOT be using P90 but P98.

Another concern is that for purposes of PROJECTING INTO THE FUTURE, you should NOT use any curve which generates at least an Rsquared value of 0.90 or better…… Which tells me that neither your exponential or linear curves are good enough to use for this analysis.

While I am happy to accept this blog posting, my best advice to help you really understand and MASTER the use of this tool/technique would be to do your W9 blog posting but this time, EXPERIMENT with the curves to see if you can get them to be closer together? Is there any way you can get all three curves to have an R squared value of >0.90? (HINT: Try dropping the 2000 – 2005 data and use only 2006 to 2013 actual upon which to base your projections) What does the plot look like with a Polynomial 2nd order? What does the plot look like if you dropped the linear and used exponential, polynomial 2nd order and polynomial 3rd order? Does that “look” better? What does that do to your variance? Which of these sets of numbers do you think would be easiest to use in making the argument to your wife that you should buy gold TODAY?

Looking forward to you showing us exactly how well you understand the use of this tool/technique as it is truly is a VERY valuable and useful approach to real life problems.

BR,
Dr. PDG, Jakarta

• thank you doc, will do it for w9.

• Why not do W9 NOW and get a little bit AHEAD of schedule? You need to focus on getting that paper done!!!!

BR,
Dr. PDG

• I can’t do the w9 NOW, sir! as you said that i have to focus on my 2nd draft paper before this weekend. 😉

• OK, make it happen Pak Afiandi!!! Good luck…… I fly to KL on Sunday to do a course there next week, but I should be around most of Saturday if you get stuck…

Important thing to remember is you are telling a STORY…… Write as if you were explaining the problem to your wife or your kids…..

BR,
PDG, Jakarta

• dear dr. paul