1. You notice that the price of a Big Mac in Argentina is 40 pesos. Here in the USA the price is $4.00. a. What is the purchasing power parity exchange rate between Argentina and the USA? b. If the actual exchange rate is 15 pesos to the $ is the Argentine currency undervalued or overvalued. c. Assume that inflation in Argentina during the next year is expected to be 15% and that inflation in the USA is expected to be around zero. What would you expect to happen to the $/peso exchange rate?
1. You notice that the price of a Big Mac in Argentina is 40 pesos. Here in the USA the price is $4.00.
a. What is the
b. If the actual exchange rate is 15 pesos to the $ is the Argentine currency undervalued or overvalued.
c. Assume that inflation in Argentina during the next year is expected to be 15% and that inflation in the USA is expected to be around zero. What would you expect to happen to the $/peso exchange rate?
2. You are changing planes in London for a flight to Paris where you will connect with your flight to Capetown. You are picking up reading material for the flight and are looking at the prices listed on the Economist magazine which conveniently lists prices in several different global currencies. You note that the price in Pounds is 2.40 pounds and the price in Euros is 2 Euros. The exchange rate for the dollar (your credit card was issued in the USA) is $1.59/pound and $1.3837/euro. Should you buy reading materials now or wait until you’re in Paris?
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