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

question 149

Multiple Choice

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2015,the Economist reported that the average price of a Big Mac in the U.S.was $4.79.In Sweden,the average price of a Big Mac at that time was 43.7 kronor.What is the "implied exchange rate" between Swedish kronor and U.S.dollars?

• A)0.11 kronor per dollar
• B)1.90 kronor per dollar
• C)9.12 kronor per dollar
• D)46.2 kronor per dollar

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Definitions:

Net Assets

The total assets of an entity minus its total liabilities, representing the owners' equity in the company.

Parent Company

A company that holds a controlling interest in one or more other companies, referred to as subsidiaries, allowing it to control their operations and policies.

Investment Date

The specific date on which an investment is made or acquired by an investor, marking the commencement of recognition in financial statements.

Acquisition Date

The effective date on which control of a business or asset is obtained by the acquirer.