Purchasing Power Parity?
Price of big mac in Hungary = 529 forints
Actual exchange rate = 204 forints / US$
Price of big mac in Canada = C$ 3.27
Actual exchange rate = 1.24 C$ / US$
Price of big mac in USA = US$ 3.06
According to purchasing power parity, what is the predicted exchange rate between the Hungarian forint and the Canadian dollar? What is the actual exchange rate?
- ~♠♥CJ♥♠~Lv 61 decade agoFavorite Answer
predicted exchange rate forint/C$ = 529 forints/C$3.27 = 161.7737 forints/C$
predicted exchange rate C$/forint = C$3.27/529 forints = 0.00618
actual exchange rate forint/C$ = 204 forints/C$1.24 = 164.5161
actual exchange rate C$/forint = C$1.24/204 forints = 0.00608
The Hungarian forint is undervalued and the Canadian dollar is overvalued.
- Anonymous1 decade ago
That's a good economics Q.
Firstly, I'd state that the assumptions are wrong. You know ... Let's us assume ... that's how almost all economics Q.s begin.
Then, why bother answering?