The table below showe the prices of atal Starbuclds late n c

The table below showe the prices of atal Starbuclds late n countn rund the workd. Using the data, and the fact hat a l currency is under-or overvalued according to purchasing power parity c$nCda, calculate how much a country\' : Round your answer to two decimal places. Include a minus sign if Country Official ex Implied exchange rate Cost of U.S. latte Price 60 baht 15pesos | 30 pesosidolar pounds/dolar

Solution

The first step is to calculate what the exchange rate would have to be if the theory of purchasing power parity holds true. To do this, we divide the cost of a latte in the foreign currency by the cost of the latte in the United States. Next, we use the equation from the “Big Mac Index” from the chapter = (PPP implied exchange rate – official exchange rate) × 100 / official exchange rate.

Country	Price	official Exchange rate	Implied exchange rate	Cost of US Latte
Thailand	60 baht	30 baht per dollar	60/3=20 baht per dollar	((20-30)/30)*100) =-33.33
Argentina	15 pesos	6 pessons per dollar	15/3=5 pessons per dollar	((5-6)/6)*100) = -16.67
UK	2 pounds	0.5 pounds per dollar	2/3=0.67 pounds per dollar	((0.67-0.5)/0.5)*100) =34
Japan	450 yen	80 yen/dollar	450/3=150 yen/dollar	((150-80)/80)*100) =87.5