Assume the spot rate is SF.9652 = $1.A hotel room in a resort area of Switzerland costs SF375.Based on absolute purchasing power parity, what should an identical room in the U.S.cost?

Question

Quizplus · Accepted Answer

Using absolute purchasing power parity, the exchange rate should adjust so that the cost of the hotel room is the same in both countries. Therefore:

SF375 = $x

x = SF375/0.9652 = $388.52

So an identical hotel room in the U.S. should cost $388.52. Thus, the correct answer is B.

Assume the Spot Rate Is SF