Which of the following would present an arbitrage opportunity?

Using data from The Economists Big Mac Index for 2011 the following table shows the local currency Show more Using data from The Economists Big Mac Index for 2011 the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was therefore computed as follows: For the price you paid for a Big Mac in the United States you could have purchased a Big Mac in the United Kingdom and had some change left over for french fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: July 25 2011 Big Mac Index: July 25 2011 Big Mac Index: July 25 2011 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) Argentina 20.00 0.24 India 205.00 0.02 United Kingdom 2.39 1.63 3.90 Poland 8.63 0.36 3.11 China 14.70 0.16 2.35 Currency Comparison To Go The Economist last modified July 28 2011 accessed April 26 13 http://www.economist.com/blogs/dailychart/2011/07/big-mac-index. Purchasing power parity (PPP) theory states that exchange rates adjust to equalize the prices of goods in any two countries. For the dollar price of a Big Mac in the United States and the United Kingdom to be identical a U.S. citizen would need to be able to convert $4.07 into GBP 2.39 GBP exactly. To find the exchange rate at which hamburger purchasing power is the same in both countries divide the price in the United States by the price in the United Kingdom: The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is the PPP exchange rate for Big Macs) is ______ . This change would mean that the dollar had _________ against the peso. If Big Macs were a durable good that could be costlessly transported between countries Which of the following would present an arbitrage opportunity? Check all that apply. Exporting Big Macs from India to China Exporting Big Macs from the United States to Argentina Exporting Big Macs from the United Kingdom to Poland Show less

Place New Order
It's Free, Fast & Safe

"Looking for a Similar Assignment? Order now and Get a Discount!

Feeling Lucky?

Enter your email address to spin the wheel for a chance to win exciting offers.