Country Price of a Big Mac Predicted Exchange Rate Actual Exchange Rate

Chile 2,640 pesos pesos/$ 679 pesos/$

Hungary 850 forints forints/$ 280 forints/$

Czech Republic 85 korunas korunas/$ 22.3 korunas/$

Brazil 16.9 real real/$ 3.72 real/$

Canada 6.77 C$ C$/$ 1.33 C$/$

1.For each country, compute the predicted exchange rate in terms of the local currency per U.S. dollar. (Recall that the U.S. price of a Big Mac was$5.58.)

2.According to purchasing-power parity, what is the predicted exchange rate between the Chilean peso and the Canadian dollar? What is the actual exchange rate?

3.How well does the theory of purchasing-power parity explain exchange rates?