A case study in the chapter analyzed purchasing-power parity for several countries using the price of Big Macs. Here are data for a few more countries: For each country, select the predicted exchange rate of the local currency per U.S. dollar.

Country Price of big Mac Predicted exchange rate Actual exchange rate
Chile 2640 peso ______ 679 peso/$
Hungry 850 forints 280 fornits/$
Czech Republic 85 korunas 22.3 korunas/$
Brazil 16.8 real 3.72 real/$
Canada 6.77 C$ 1.33 C$

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is . However, the actual exchange rate is _forints per Canadian dollar.

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is 125.55 Forint per C$. However, the actual exchange rate is 210.53 forints per Canadian dollar.

Predicted exchange rate = 850/6.77 = 125.55 Forint per C$

Actual Exchange rate = 280/1.33 = 210.53 Forint per C$

valerygonzalez36 valerygonzalez36 · Answer 2 · 2021-04-19T17:25:05+02:00

Answer:

Question leaves out the price of a Big Mac which is $4.37.

Predicted exchange rate = Country price of Big Mac/ US price of Big Mac

Predicted exchange rate:

Chile = 2,640/4.37 = 604.12 Pesos / US dollar

Hungary = 850/4.37 = 194.51 Forints / USD

Czech Republic = 85 / 4.37 = 19.45 Korunas / USD

Brazil = 16.8/4.37 = 3.84 Real/ USD

Canada = 6.77/4.37 = 1.55 C$/ US$

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is 125.55 Forint per C$. However, the actual exchange rate is 210.53 forints per Canadian dollar.

Predicted exchange rate = 850/6.77 = 125.55 Forint per C$

Actual Exchange rate = 280/1.33 = 210.53 Forint per C$

Explanation: