Question

This question is based on the concept of the Purchasing Power Parity (the idea that e-rate should represent a valid comparison of prices across countries).

Suppose that the price of Filet-o-Fish McDonald’s meal is 4.56 reals in Brazil, while it is 37 pesos in Mexico.

The exchange rate of Brazilian real to Mexican peso is 13.6.

How much would Filet-o-Fish meal cost in Mexico in Brazili

Answer 1

ans....
Meal in Brazil : 4.56 reals
Meal in Mexico 37 pesos
ER between Mexican peso and Brazilian real is 13.6 pesos per real
13.6 pesos = 1 real
Meal in Brazil : 4.56 reals
Meal in Mexico 37 pesos = 37/13.6 = 2.72 reals
So, the Filet-o-Fish is cheaper in Mexico when calculated in reals. So people will travel more to Mexico as food is cheaper there.
Since, more and more people will move to Mexico therefore, the demand of pesos will increase and the Mexican peso will appreciate so Peso will become expensive.
1 real will be exchanged for less than 13.6 pesos
After the increase in the demand of pesos, let's assume the new exchange rate is
12 pesos = 1 real