Answered: Predicted Actual Price of a Exchange…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A case study in the chapter analyzed purchasingpower parity for several countries using the pricc of
Big Macs. Here arc data for a few more countries:

a. For each country, compute the predicted exchange
rate of the local currency per U.S. dollar. (Recall
that the U.S. price o( a Big Mac was $4.93.)
b. According to purchasing-power parity, what is the
predicted exchange rate between the Hungarian
forint and the Canadian dollar? What is the actual
exchange rate?
c. How well docs the theory of purchasing-power
parity explain exchange rates?

Predicted
Actual
Price of a
Exchange
Rate
Exchange
Country
Big Mac
Rate
Chile
2,100 pesos
pesos/$ 715 pesos/$
Hungary
900 forints
forints/$ 293 forints/$
Czech
75 korunas
korunas/$ 25.1 korunas/$
Republic
Brazil
13.5 real
real/$
4.02 real/$
Canada
5.84 C$
C$$$
1.41 C$/$

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