Question

1. USD/AUS 75.30 in nominal currency exchange rate terms. The same Dell computer costs $1,700.00 in the U.S. and 103,000.00 Argentine Pesos in Argentina. Please select the best answer choice below.

   	I.	The Argentine Peso is undervalued and I am better off buying the Dell computer in Argentina.
   	II.	The Argentine Peso is overvalued and I am better off buying the Dell computer in Argentina.
   	III.	The Argentine Peso is overvalued and I am better off buying the Dell computer in the U.S.
   	IV.	The Argentine Peso is undervalued and I am better off buying the Dell computer in the U.S.

10 points   

QUESTION 10

1. CLP/USD .0013 in nominal currency exchange rate terms. A Big Mac costs $3.99 in the U.S. How much would I expect to pay for the same Big Mac in Chile?

   	I.	3.99 Chilean Pesos
   	II.	3,069.23 Chilean Pesos
   	III.	.01 Chilean Pesos
   	IV.	800 Chilean Pesos

Answer 1

1. Value of Dell in Argentine peso according to the interest rate parity=(exchange rate X value in United States)= (75.30*1700)= 128,100 pesos but the price is only 103,000 in Argentina.So, argentinian pesos is undervalued.

The argentinian pesos is undervalued and one should be trying to buy it in Argentina.

Correct answer will be option (I).

10. The price expected to be paid in Chile= (price in United States / exchange rate)

=(3.99/.0013)=3069.23

Correct answer will be option (II)