ian g asked in Social ScienceEconomics · 1 decade ago

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?

2 Answers

  • 1 decade ago
    Favorite 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.

  • Anonymous
    1 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?

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