'The Hindu Young World'
Money-Wizards Quiz #3 - Results

Winners

Winners of Young World Money-Wizards Quiz #3:

  1. R.K. Shalini from Trichy - 14
  2. Vignesh from Karaikudi
  3. B.Hariessh Kumar fromĀ  11A, Carmel Garden Metric School, Coimbatore
  4. K. Manish

We have also decided to give a prize to the best articulated answer.

Winner of the best articulated answer :

1. Akshaya Sivakumar from Chennai.

List of other Participants who emailed a Satisfactory Answer


The best articulated answer

If the transportation cost of the Big Mac between India and US is zero, then it would be trivial to buy the Big Macs in India at $ 1.6 and transport it to the US and sell it there for a nominally higher cost, while it still would be lower than $ 4.07 which is the average price there. The transporter makes a profit and everyone will buy the Big Mac produced in India. The concept of exchange rates is to maintain Purchasing Power Parity. Purchasing Power Parity means that one unit of a currency should be able to buy the same amount of goods in all countries. Since currently, the purchasing power of the dollar is different in India and the US ($ 1 buys approximately 25% of a big mac in the US and 66% of a Big Mac in India), this kind of trade exists and works to make the purchasing power same. The trade will make the rupee appreciate and the dollar depreciate against the rupee, so that in the end, the purchasing power of one dollar is the same in India and the US. The equilibrium will happen when Rs 84 will be equivalent to $ 4.07. which is around $ 1 = Rs 20.

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