In class we discussed The Economist's Big Mac Index which is based on a representative basked of agricultural commodities. Let's consider a basket of high-tech commodities and call it the MacBook Air Index.

(a) The USD-DKK exchange rate according to Bloomberg on November 12th was 7.1868. What are the two currencies in this currency pair? What does this exchange rate mean?

(b) The price of the M1-chip MacBook Air in the United states is USD 999. The price in Denmark is DKK 9,399, which includes a value-added tax (VAT) of DKK 1,925. Note: you need to subtract the VAT to get the pre-tax price for comparison. What is the price in Denmark before VAT?

(c) How does the price of the MacBook Air in Denmark compare with the price implied by the price in the U.S. and the nominal exchange rate from Bloomberg given above? (d) What nominal exchange rate is implied by the price of the MacBook Air in the U.S. and in Denmark if PPP holds?

(e) What real exchange rate is implied by the nominal exchange rate and the price of the MacBook Air in the U.S. and in Denmark? (f) Does Purchasing Power Parity (PPP) hold? Why?

https://www.bloomberg.com/markets/currencies/cross-rates