Question

Nominal Exchange rate is ratio of value of currency of two countries.

\$1 US = 83 yen

Real exchange rate= nominal exchange rate * foreign price/domestic price

If a Big Mac, fries, and a Coke cost \$3.91 in San Francisco, then its cost must be in Yen in Osaka= Cost of goods basket in San Francisco * nominal exchange rate

=\$3.91*83 yen

=324.53 Yen

=325 Yen in Osaka approximately.

Hence option a is the correct answer.

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