Question

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. (Hint: Recall that the U.S. price of a Big Mac was $4.37.)

chile
hungary
czech republic
brazil
canada

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

Answer 1

Answer:

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

Predicted exchange rate:

Chile = 2,050 / 4.37

= 469.11 Pesos / US dollar

Hungary = 830 / 4.37

= 189.93 Forints / USD

Czech Republic = 70 / 4.37

= 16.01 Korunas / USD

Brazil = 11.25 / 4.37

= 2.57 Real/ USD

Canada = 5.41 / 4.37

= 1.24C$/ US$

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is 153.42 Forint per C$. However, the actual exchange rate is 217 Forint per Canadian Dollar.

Predicted exchange rate = 830 / 5.41 = 153.42 Forint per C$

Actual Exchange rate = 217/1 = 217 Forint per C$