A case study in the chapter analyzed purchasing-power parity for several countries using the price of Big Macs. Here are data for a few more countries: For each country, select the predicted exchange rate of the local currency per U. S. dollar. Country Price of big Mac Predicted exchange rate Actual exchange rate
Chile 2640 peso 679 peso/$
Hungry 850 forints 280 fornits/$
Czech Republic 85 korunas 22.3 korunas/$
Brazil 16.8 real 3.72 real/$
Canada 6.77 C$ 1.33 C$

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is . However, the actual exchange rate is forints per Canadian dollar.

Question leaves out the price of a Big Mac which is $4.37.

Predicted exchange rate = Country price of Big Mac/ US price of Big Mac

Predicted exchange rate:

Chile = 2,640/4.37 = 604.12 Pesos / US dollar

Hungary = 850/4.37 = 194.51 Forints / USD

Czech Republic = 85 / 4.37 = 19.45 Korunas / USD

Brazil = 16.8/4.37 = 3.84 Real/ USD

Canada = 6.77/4.37 = 1.55 C$/ US$

According to purchasing power parity, the predicted exchange rate between the Hungarian forint and the Canadian dollar is 125.55 Forint per C$. However, the actual exchange rate is 210.53 forints per Canadian dollar.

Predicted exchange rate = 850/6.77 = 125.55 Forint per C$

Actual Exchange rate = 280/1.33 = 210.53 Forint per C$

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