Question

A table lamp costs $27.69 in the U.S. If absolute purchasing power parity exists, what will the same table lamp cost in Singapore if the direct quote is 0.7413?

		SGD38.27
		SGD38.12
		SGD37.16
		SGD37.35
		SGD37.51

Answer 1

If absolute purchasing power parity exist, there will be no chance for arbitration. Price of an item will be equal in two countries, except for change in dollar quotation.

Here, table lamp cost $27.69 but exchange rate in Singapore is 0.7413.

Cost of lamp in Singapore = 27.69/0.7413

Cost of lamp in Singapore = SGD 37.35