For the dollar price of a Big Mac to be the same in both countries, a U.S. Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. Place Local Price (their currency) Actual Exchange Rate ($/unit of their currency) Dollar Price ($) Note: Round your answers to the nearest cent.
The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows:ĭollar price of a Big Mac in the United KingdomDollar price of a Big Mac in the United Kingdom = GBP 3.29×$1.25GBP 1.00GBP 3.29×$1.25GBP 1.00 = $4.11$4.11įor 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!Ĭomplete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. The actual exchange rate between the British pound and the U.S. At the time of the data collection, a Big Mac would have cost you $5.74 in the United States and GBP 3.29 in the United Kingdom. Using data from The Economist's Big Mac Index for 2019, 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. dollar-Japanese yen rises from $0.009126 to $0.0109512 per Japanese yen, the Japanese yen _ in value, or _, relative to the U.S. If the nominal exchange rate for the U.S. Suppose that on June 13, 2019, an ornamental bookcase handmade in the United Kingdom is priced at GBP 570. Use the information in the table to answer the questions that follow.įoregin Currency Cost of One Unit of Foreign Currency ($) Suppose the following table presents nominal exchange rate data for June 13, 2019, in terms of U.S. A nominal exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. The nominal exchange rate is the price of one currency in terms of another currency.
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