please show computation 3) If the current exchange rate is 113 Japanese yen per U.S. dollar,...

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please show computation 3) If the current exchange rate is 113 Japanese yen per U.S. dollar,...

please show computation

3) If the current exchange rate is 113 Japanese yen per U.S. dollar, the price of a Big Mac hamburger in the United States is $3.41, and the price of a Big Mac hamburger in Japan is 280 yen, then other things equal, the Big Mac hamburger in Japan is:

A) correctly priced.

B) under priced.

C) over priced.

D) There is not enough information to determine if the price is appropriate or not.

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Answer 1

Answer #1

Given
The Current Exchange Rate: 1 US $ = 113 Japanese yen

The price of a Big Mac hamburger in the United States is $3.41

Then as per Purchasing Power Parity Theory, the Big Mac hamburger
price in Japan Should be $3.41 * 113 Japanese yen = 385.33 Japanese yen

Hence the Big Mac hamburger in Japan is Under Priced

Option - B is Correct

Option D- The question has complete information to determine the price.
Option A and C are incorrect, detailed explanation is given above

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Answer 2

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