Question

Suppose Tran studies in Vietnam. He buys a bowl of pho (noodle soup) for 250 baht. Tran remembers paying $8 for a similar bowl of pho before he left the United States. If purchasing power parity held exactly, the exchange rate would be ________baht per dollar (round your answer to two decimal places).

Answer 1

31.25 baht/$1

Step-by-step explanation:

It is obvious that the dollar is a stronger currency among the two currencies, hence, in order to determine the amount of baht that one dollar would exchange for, we need to divide the price of bowl of pho in the weaker currency by the amount of the same bowl of pho in the stronger currency as shown by the formula below:

baht/$=price of bowl of pho in baht/price of bowl of pho in $

price of bowl of pho in baht=250 baht

price of bowl of pho in $=$8

baht/$=250 baht/$8

baht/$ exchange rate=31.25 baht/$1