1. Suppose the Swiss franc price of a dollar was 1.233 SFr/$ in 2007 and 0.9508 SFr,$...

Question:

1. Suppose the Swiss franc price of a dollar was 1.233 SFr/$ in 2007 and 0.9508 SFr,$ in 2013. The price index for Switzerland (2007=100) was 102.82 in 2013, and the price index for the US (2007=100) was 113.77 in 2013. What was the real SFr/$ in 2013? Does absolute PPP hold? How can you tell?
2. Using the data provided in question 1, if absolute PPP was assumed to hold, was the dollar overvalued or undervalued, relative to the Swiss franc in 2013? Considering this information, would you expect that the dollar should have appreciated or depreciated? By what percentage?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...