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The "Big Mac Theory of Exchange Rates" Tests the Accuracy

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The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2013,The Economist reported that the average price of a Big Mac in the United States was $4.56.In Switzerland,the average price of a Big Mac at that time was 6.50 Swiss francs.If the exchange rate between the dollar and the Swiss franc was 0.93 Swiss francs per dollar,explain how it would be profitable to buy Big Macs in the United States instead of in Switzerland.


Definitions:

Corporate Human Capital

Company-specific knowledge, skills, and abilities that transcend any particular location within the entire global company, not simply the collective knowledge of the staff at headquarters.

Location Specificity

Refers to the unique attributes or characteristics that are specific to a particular geographic location.

Company Specificity

Features or characteristics unique to a particular company that differentiate it from its competitors.

Local Human Capital

The collective skills, knowledge, and experience possessed by individuals within a local region, contributing to its economic development.

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