Suppose that 0.91 Swiss francs trade for $1, in the U.S. a Big Mac costs $4.37, and in Switzerland price a Big
Mac costs 6.5 francs. (a) What is the value of the real exchange rate between the Swiss and the U.S. Big Mac? (b) Explain what the theory of purchasing-power parity implies. (c) If PPP held, what should be the nominal exchange rate between the Swiss franc and the US dollar? (d) Why is PPP not entirely true in the real world? Please use a specific example to explain why PPP does not hold true even for a fairly standard product like a Big Mac.
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