The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Assume that a Chrysler automobile sells for $15,000 in the United States and that the exchange rate is $1 = €1.3. For purchasing power parity to hold, the same car should sell in Germany for:
A)€15,000.
B)€11,538.
C)€19,500.
D)€1,538.
E)€15,500.

Question

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2
 
-Assume that a Chrysler automobile sells for $15,000 in the United States and that the exchange rate is $1 = €1.3. For purchasing power parity to hold, the same car should sell in Germany for:
A)€15,000. 
B)€11,538. 
C)€19,500. 
D)€1,538. 
E)€15,500.

Quizplus · Accepted Answer

Purchasing power parity implies that the price of the car in Germany should be the same as in the US when converted at the exchange rate. $15,000 * €1.3/$1 = €19,500.

The Figure Given Below Depicts the Foreign Exchange Market for British