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

question 211

Essay

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2015,The Economist reported that the average price of a Big Mac in the United States was $4.79.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.

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