Assume $1 = ¥106.83 = £.7309.If a TV in London costs £430,what will that identical TV cost in Tokyo if absolute purchasing power parity exists?

Question

Quizplus · Accepted Answer

Absolute purchasing power parity states that the exchange rate between two currencies should equal the ratio of the price levels in the two countries. 
So, we need to find the price of the TV in Tokyo which can be calculated as:

Price in Tokyo = Price in London x (Tokyo price level/London price level)

Price in Tokyo = £430 x (¥/£) x (Tokyo price level/London price level)

Price in Tokyo = £430 x (106.83/1) x (1/0.7309)

Price in Tokyo = £430 x 146.1319

Price in Tokyo = £62,849.77 or ¥6,284,977 (rounded)

Therefore, the best choice is C, ¥62,849.77.