Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for 6,000,000 Japanese yen i

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Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for 6,000,000 Japanese yen i

n Tokyo and the Mercedes sells for 50,000 euros in Stuttgart. Using the purchasing power parity theory, explain the exchange rate between the yen and the euro.

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1 answer:

yarga [219] · Answer 1 · 2021-12-04T09:00:45+03:00

Answer:

1 EUR = 120 JPY

Explanation:

As the purchasing power parity theory, the exchange rate of currency 1 to currency 2 = Cost of good in currency 1 / cost of same valued item in currency 2

In this case, a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value, then the exchange rate between the yen and the euro

= price of Lexus in Tokyo/ price of Mercedes in Stuttgart

= 6,000,000 JPY/ 50,000 EUR

= 120 JPY/EUR