Asked by Chris Hughes on Jul 17, 2024
Verified
A product sells for $750 in Canada.The exchange rate is $1 to 9.55 pesos.If the law of one price holds,what is the price of the product in Mexico?
A) 4,375.00 pesos
B) 5,545.50 pesos
C) 6,750.00 pesos
D) 7,162.50 pesos
Law of One Price
An economic theory that suggests the price of an identical good will have the same price globally, assuming no transportation costs and no differential taxes.
Canadian Dollars
The currency of Canada, symbolized as CAD and denoted by the sign $.
Pesos
The national currency of several countries in Latin America as well as the Philippines.
- Acquire knowledge of purchasing power parity and its role in the field of international finance.
Verified Answer
AC
Araceli CarmonaJul 19, 2024
Final Answer :
D
Explanation :
The law of one price states that in the absence of transportation costs and barriers to trade, the price of a product should be the same in all markets when expressed in a common currency. To find the price in Mexico, multiply the price in Canada by the exchange rate: $750 * 9.55 = 7,162.50 pesos.
Learning Objectives
- Acquire knowledge of purchasing power parity and its role in the field of international finance.