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Choose one of the following topics to discuss for Module 2:

Do you think a Big Mac should be priced the same whether we purchase on in Connecticut, London, or Shanghai? Why or why not?

Identify a recent example of the violation of the Law of One Price in the financial markets. Why the discrepancy in prices of the same thing in different markets? Do you believe the prices will converge? Why or why not? How can you take advantage of this price difference?

Identify a recent example of the violation of the Law of One Price in any market. Why the discrepancy in prices of the same thing? Do you believe the prices will converge? Why or why not? Can you take advantage of this price difference?

The initial post must be approximately 200-250 words.

1.

According to the textbook, it states that the Law of One Price should hold when if two commodities are exactly the same and fungible. This means that the commodity has to be the same (even if it has a different name) and to be able to be interchangeable at a minimum cost. Based on the Purchasing-Power Parity (PPP) theory, noted in The Big Mac Index, exchange rates for different countries should be equalized for the same goods. As we see in the Economist article, the U.S. is the baseline and many other countries compared to that such as Canada would be considered undervalued while Switzerland is overvalued.

Based on the above analysis, I think the prices for Big Mac should not be priced the same whether we purchase at different locations. From a behavioral point of view, there are many factors that go into different prices such as the difference in currency rates, inflation, taxes, and culture. Even when applying the PPP theory to equalize the cost of big macs globally, we would still see some discrepancies depicted based on the factors I mentioned. The "value %" column in the Economist article demonstrates this.

The reply post must be approximately 50-75 words