Make up a value for the exchange rate

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Suppose that a Starbuck’s venti latte currently sells for US$4.00 in the United States and C$5.00 in Canada. Make up a value for the exchange rate between the U.S. dollar and the Canadian dollar (expressed as Canadian dollars per U.S. dollar) that leaves the U.S. dollar overvalued on a Starbuck’s purchasing power parity basis. Then use your numbers to show that, at this exchange rate, it would be cheaper to purchase coffee in Canada than in the U.S.

Reference no: EM13886529

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