story Bookmarks Window Help courses.aplia.com 8. Purchasing-power parity Using d
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story Bookmarks Window Help courses.aplia.com 8. Purchasing-power parity Using data from The Economist's Big Mac Index for 2016, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.93 in the United States and GBP 2.89 in the United Kingdom. The actual exchange rate between the British pound and the us. dollar was si,63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows Dollar price ofa Big Mac inthe United Kingdom-GBP 2.89 × asme s4.71 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for fries! Complete the final column of the table by computing the donlar price of a big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent Big Mac Index: January 2016 Actual Exchange Rate (Dollars per unit of foreign currency) 1.10 1.02 1.63 0.36 0.16 Dollar Price (Foreign currency) (Dollars) The Eurozone Switzerland United Kingdom Poland China 3.72 6.50 2.89 9.60 17.60 4.71 3.46 2.82 Source "Curmency Comparison, To Go. The Economislastmod fed January 7, 206, accessee Juy 8,201, 16Explanation / Answer
1.
The Eurozone
Dollar price: 3.72 * 1.10/1 = $4.09
Switzerland
Dollar price: 6.50 * 1.02/1 = $6.63
2.
PPP exchange rate for Big Macs is 4.93/3.72 = $1.325 per Euro
This change would mean that the Euro had depreciated against dollar.
3.
Present arbitrage opportunity:
Exporting BM from Switzerland to China
Exporting BM from Eurozone to US
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