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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PURCHASING POWER PARITY In the spot market, 12 8 Mexican pesos can be exchanged for 1 U.S. dollar. A compact disc costs $10 in the United States. If purchasing power parity (PPP) holds, what should be the price of the same disc in Mexico?

Summary Introduction

To determine: The price of the disc in Mexico pesos.

Purchasing power parity:

Purchasing power parity (PPP) is a monetary hypothesis that looks at changed nations' monetary forms through a "crate of merchandise" approach.

Explanation

Given,

U.S 1 dollar is equal to 12.8 Mexico pesos.

Cost of 1 disc in U.S is $10.

Formula to calculate the price of the disc in pesos:

PriceofdiscinMexico=PriceofdiscinU

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