If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

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Quizplus · Accepted Answer

According to the principle of Purchasing Power Parity, the cost of identical goods should be equal in different countries when measured in a common currency. However, in this scenario, the cost of bagels in France is 1€, while the cost of bagels in the US is 1$. Therefore, when converted to euros, the cost of bagels in the US would be 0.74€, which is cheaper than the price of bagels in France. Therefore, a person from France would benefit from trading their euros for dollars and purchasing bagels in the US.

If the Current Exchange Rate Is 1€/1$U