rate Price 80 SolutionThe first step is to calculate what th

rate Price 80

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

rate Price 80 SolutionThe 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, w

rate Price 80 SolutionThe first step is to calculate what th

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