Question

A soda would cost 2 dollars in the USA, and the same soda costs 3.5 yen...

A soda would cost 2 dollars in the USA, and the same soda costs 3.5 yen in Japan. If the USA/JAP exchange rate is 1 USD = 2 JPY, then PPP (does/does not)_____________ exist. If it did, the soda would cost yen______________ in Japan.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans. If Purchasing Power Parity is satisfied then,

Exchange rate (Yen/Dollar) = Price of soda in Japan/ Price of soda in USA

=> Thus, a $2 soda must cost,

Price if soda in Japan = 2*2 = 4 Yen

So, if purchasing power parity holds then, the $2 soda would cost 4 Yen in Japan.
Thus, purchasing power parity does not hold as price of $2 soda is 3.5 Yen in Japan not 4 yen.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A basket of goods costs £2,000 in the UK and the same basket costs ¥300,000 in...
A basket of goods costs £2,000 in the UK and the same basket costs ¥300,000 in Japan. If E¥/£ = 160, what is the real exchange rate of yen against pound? Does the PPP hold? Explain
1. If a financial calculator costs ¥3,980 while the same calculator costs $40 in the United...
1. If a financial calculator costs ¥3,980 while the same calculator costs $40 in the United States, what is the current exchange rate of US dollars for Yen? If, over the next year, inflation is 6% in Japan and 10% in the United States, what will the calculator cost next year? What is the exchange rate of US dollars for Yen with inflation?
A bundle of goods in Japan costs ¥4,235,000 while the same goods and services cost $31,200...
A bundle of goods in Japan costs ¥4,235,000 while the same goods and services cost $31,200 in the United States. a. If purchasing power parity holds, what is the current exchange rate of U.S. dollars for yen? (Round your answer to 4 decimal places. (e.g., 32.1616))   Current exchange rate $  per yen b. If, over the next year, inflation is 8 percent in Japan and 7 percent in the United States, what will the goods cost next year?               Cost of Goods...
3) Suppose that the spot exchange rate S(¥/€) between the yen and the euro is currently...
3) Suppose that the spot exchange rate S(¥/€) between the yen and the euro is currently ¥110/€, the 1-year euro interest rate is 6% p.a., and the 1-year yen interest rate is 3% p.a. Which of the following statements is MOST likely to be true? A. The high interest rate currency must sell at a forward premium when priced in the low interest rate currency to prevent covered interest arbitrage Page 3 of 13 B. Real interest parity does not...
A bundle of goods in Japan costs ¥2,698,100 while the same goods and services cost $25,200...
A bundle of goods in Japan costs ¥2,698,100 while the same goods and services cost $25,200 in the United States. a. If purchasing power parity holds, what is the current exchange rate of U.S. dollars for yen? b. If, over the next year, inflation is 6 percent in Japan and 10 percent in the United States, what will the goods cost next year? c. Will the dollar depreciate or appreciate relative to the yen over this time period?
4. The Economist publishes annually the ”hamburger standard” by which they compare the prices of the...
4. The Economist publishes annually the ”hamburger standard” by which they compare the prices of the McDonalds Corporation Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. A Big Mac costs USD2.54 in the United States and JPY294 in Japan. The current exchange rate is 124 Japanese yen per U.S. dollar. (a)...
Suppose a Toyota costs 2 million yen, and a Caterpillar tractor costs $300,000. If the exchange...
Suppose a Toyota costs 2 million yen, and a Caterpillar tractor costs $300,000. If the exchange rate between Japan and the United States was 80 yen per dollar, calculate the price of the Toyota to someone in the United States and the price of the tractor to someone in Japan.
1. Assume that Nissan spends an average of 1.875 million yen to manufacture a car in...
1. Assume that Nissan spends an average of 1.875 million yen to manufacture a car in Japan, plus $2,600 to market and distribute the car in the United States. Furthermore, Nissan adds 10% margin to price the car. The exchange rate is $1 = ¥100 Assuming that the exchange rate at the end of the year is expected to be $1 = ¥80, what will be the impact of the exchange rate on the dollar cost the auto? If Nissan...
2. The CFO of Honda Motors Japan observes that USD/JPY spot rate has been holding steady,...
2. The CFO of Honda Motors Japan observes that USD/JPY spot rate has been holding steady, and the interest rates in both currencies have also been relatively fixed over the last week. The company has 10 Billion Yen in cash that the CFO does not expect using in the next 6 months. The CFO is wondering if he should keep the cash in dollars or yen. Essentially he is wondering if there is a benefit in doing an uncovered interest...
MXN/USD .04 in nominal currency exchange rate terms. A Volvo costs $43,000 in the U.S. The...
MXN/USD .04 in nominal currency exchange rate terms. A Volvo costs $43,000 in the U.S. The same Volvo costs 975,000 Pesos in Mexico. Based on these data points, select all correct responses below. I. The USD is undervalued. II. The USD is overdervalued. III. If PPP were to exist at MXN/USD .04, I would expect to pay 975,000 for the Volvo in Mexico. IV. If PPP were to exist at MXN/USD .04, I would expect to pay 1,075,000 for the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT