An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 1

Question

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. Which of the following is correct?

a. if the nominal exchange rate is .50 Singaporean dollars per U.S. dollar, purchasing power parity holds.

b. if the nominal exchange rate is 1 Singaporean dollars per U.S. dollar, purchasing power parity holds.

c. if the nominal exchange rate is 2.0 Singaporean dollars per U.S. dollar, purchasing power parity holds.

d. purchasing power parity does not hold at any of the above exchange rates.

Explanation / Answer

Ans c.

The purchasing power of the U.S. dollars is double than that of the Singaporean dollars.

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