Eileen, a manager at an international restaurant chain, wants to know if it will be most cost effective to buy 1,000 pounds of sugar in Country X or in Country Y using U.S.dollars.Which of the following is Eileen most likely trying to determine?

Question

Quizplus · Accepted Answer

Eileen is most likely trying to determine purchasing power parity, which refers to the theory that exchange rates between currencies should equalize the prices of a basket of goods and services in different countries. If Eileen can determine whether it is more cost effective to buy sugar in Country X or Country Y using U.S. dollars, she can determine whether the exchange rate between the currencies is in line with the relative prices of sugar in each country.

Eileen, a Manager at an International Restaurant Chain, Wants to Know