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Suppose the table below shows hypothetical prices of a tall Starbucks latte in countries around the...

Suppose the table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a latte costs $3 in the United States, calculate how much a country’s currency is under- or overvalued according to purchasing power. First, calculate the implied exchange rate for each country. Calculate the percentage difference between the implied and official rate.

Instructions: Round your Implied exchange rate to two decimal places. Enter your difference calculation as a percentage rounded to two places.

Country Price Official exchange rate Implied exchange rate if PPP holds % difference between Implied and Official rate
Thailand 55 baht 35 baht/dollar
baht/dollar		 baht/dollar %
Argentina 17 pesos 6 baht/dollar
pesos/dollar		 pesos/dollar %
United Kingdom 2 pounds 0.4 pound/dollar pound/dollar %
Japan 455 yen 78 yen/dollar yen/dollar %

rev: 09_14_2017_QC_CS-100220

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Answer #1

8ol IER (Implied exchange Rade) PPP hel こRie in the respective home cou nhies foice in the Us e xloo fPP = Implied exchange n

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