The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a latte costs $2 in the United States, calculate how much a country’s currency is under- or overvalued according to purchasing power. First, calculate the implied exchange rate for each country. Next, calculate the “latte index” for each country using the Big Mac index formula from the chapter.**Instructions:** Round your answers to two decimal places.| Country | Price | Official exchange rate | Implied exchange rate if PPP holds | Cost of U.S. latte ||-----------------|----------|------------------------|------------------------------------|--------------------|| Thailand | 50 baht | 25 baht/dollar | | || Argentina | 10 peso(s) | 5 pesos/dollar | | || United Kingdom | 1 pound(s) | 0.6 pounds/dollar | | || Japan | 400 yen | 70 yen/dollar | | |In this table, you are required to fill in the blanks for the implied exchange rate if purchasing power parity (PPP) holds, and the percentage cost of a U.S. latte in each country's currency.

An exchange rate is the rate at which one currency can be exchanged for another currency. It represents the value of one country's currency relative to another currency. Exchange rates play a crucial role in international trade and finance, affecting the cost of goods and services imported or exported between countries and influencing investment flows.For Thailand-Implied exchange rate = Latte price in Baht / Latte price in Dollar = 50 / 2 = 25 Baht / DollarBaht is nor overvlalued nor undervalued% of valuation = (25 – 25)/25 = 0%For Argentina-Implied exchange rate = Latte price in Peso / Latte price in Dollar = 10/2 = 5 Peso / dollarThe peso is nor overvalued or undervalued% of valuation = (5-5)/5 = 0%For United Kingdom-Implied exchange rate = Latte price in Pound / Latte price in Dollar = 1/2 = 0.50 Pound / DollarThe pound is undervalued.% of Undervaluation = (0.50 - 0.6)/0.6 = -16.66%For Japan-Implied exchange rate = Latte price in Yen / Latte price in Dollar = 400 / 2 = 200 Yen / DollarYen is overvalued.% of Overvaluation = (200 - 70)/70 = 185.71% Final-CountryImplied exchange rate of PPP holdsCosts of US holdsThailand250%Argentina50%United kingdom0.5-16.66%Japan200185.71%

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The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a atte costs $2 in the United States, calculate how much a country's currency is under- or overvalued according to purchasing power First, calculate the implied exchange rate for each country. Next, calculate the "latte index" for each country using the Big Mac inde ormula from the chapter. nstructions: Round your answers to two decimal places. Country Thailand. Argentina United Kingdom Japan Price 50 baht 10 peso(s) 1 pound(s) 400 yen Official exchange rate 25 baht/dollar 5 pesos/dollar 0.6 pounds/dollar 70 yen/dollar Implied exchange rate if PPP holds baht/dollar pesos/dollar pounds/dollar yen/dollar Cost of U.S. latte % % % %

The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a atte costs $2 in the United States, calculate how much a country's currency is under- or overvalued according to purchasing power First, calculate the implied exchange rate for each country. Next, calculate the "latte index" for each country using the Big Mac inde ormula from the chapter. nstructions: Round your answers to two decimal places. Country Thailand. Argentina United Kingdom Japan Price 50 baht 10 peso(s) 1 pound(s) 400 yen Official exchange rate 25 baht/dollar 5 pesos/dollar 0.6 pounds/dollar 70 yen/dollar Implied exchange rate if PPP holds baht/dollar pesos/dollar pounds/dollar yen/dollar Cost of U.S. latte % % % %

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a latte costs $2 in the United States, calculate how much a country’s currency is under- or overvalued according to purchasing power. First, calculate the implied exchange rate for each country. Next, calculate the “latte index” for each country using the Big Mac index formula from the chapter.

**Instructions:** Round your answers to two decimal places.

| Country | Price | Official exchange rate | Implied exchange rate if PPP holds | Cost of U.S. latte |
|-----------------|----------|------------------------|------------------------------------|--------------------|
| Thailand | 50 baht | 25 baht/dollar | | |
| Argentina | 10 peso(s) | 5 pesos/dollar | | |
| United Kingdom | 1 pound(s) | 0.6 pounds/dollar | | |
| Japan | 400 yen | 70 yen/dollar | | |

In this table, you are required to fill in the blanks for the implied exchange rate if purchasing power parity (PPP) holds, and the percentage cost of a U.S. latte in each country's currency.

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