MECO 6303-the “predicted exchange rate” is the exchange rate predicted
In this question, the “predicted exchange rate” is the exchange rate predictedby the theory of purchasing-power parity. Consider the data on the price for Big Macs forthe following five countries (a few years old): Price Predicted ActualCountry of Big Mac Exchange Rate Exchange RateChile 1,750 pesos pesos/$ 549 pesos/$Hungary 720 forints forints/$ 199 forints/$Czech Republic 67.9 korunas korunas/$ 18.7 korunas/$Brazil 8.03 real real/$ 2.00 real/$Canada 3.89 C$ C$/$ 1.16 C$/$(a). For each country, compute the predicted exchange rate of the local currency per U.S.dollar. The U.S. price of a Big Mac was $3.57.(b). According to purchasing-power parity, what is the predicted exchange rate betweenthe Hungarian forint and the Canadian dollar? What is the actual exchange rate?