Suppose a Tablet Computer Costs $200 in Australia and 25

question 96

Essay

Suppose a tablet computer costs $200 in Australia and 25 000 in Japan. Suppose the exchange rate is $1 = 100 yen. According to purchasing power parity, what should happen to the exchange rate in the long run? What will be the new exchange rate?
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Definitions:

Voidable Contract

An agreement that may be annulled or declared void by one of the parties due to certain legal deficiencies or circumstances.

Rescinded

The act of revoking, canceling, or repealing a contract, decision, or agreement, making it as if it never existed.

Scienter

Deliberately or knowingly.

Duress

Any unlawful act or threat exercised on a person whereby the person is forced to enter into an agreement or to perform some other act against his or her will.