Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 09 Feb 2018 My Price 7.00

purchasing-power parity

A case study in the chapter analyzed purchasing-power parity for several countries using the price of a Big Mac. Here are data for a few more countries:

 

PRICE OF

PREDICTED

ACTUAL

COUNTRY

A BIG MAC

EXCHANGE RATE

EXCHANGE RATE

South Korea 3,000 won

 

_____ won/$

1,218 won/$

Spain 375 pesetas

 

_____ pesetas/$

155 pesetas/$

Mexico 19.9 pesos

 

_____ pesos/$

9.54 pesos/$

Netherlands 5.45 guilders  _____ guilders/$ 2.05 guilders/$

a. For each country, compute the predicted exchange rate of the local currency per U.S. dollar. (Recall that the U.S. price of a Big Mac was $2.43.) How well does the theory of purchasing-power parity explain exchange rates?

b. According to purchasing-power parity, what is the predicted exchange rate between the South Korean won and Spanish peseta? What is the actual exchange rate?

c. Which of these countries offers the cheapest Big  Mac? Why do you think that might be the case?

 

Answers

Maurice Tutor
(5)
Status NEW Posted 09 Feb 2018 10:02 PM My Price 7.00

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