question archive The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued
The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued
Subject:EconomicsPrice:2.84 Bought5
The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchanges rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar.
a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative US
dollar? Explain your answer and show the calculation.
b. Do you think the price of a representativeness car, Mercedes Benz in different countries
provides a valid test of purchasing power parity?
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