If the exchange rate from US dollars to Euros is $1= £0.92 which currency has more purchasing power?
In: Economics
If we make the big (and probably wrong) assumption that all prices are equal (a Big Mac costs $3 in the US and £3 in England), than the answer is the British Pound*. An American with $3 in their pocket would get to England, change those dollars for £2.76 (3 * .92), and not be able to afford a Big Mac. A Brit with £3 in their pocket would get to the US, change those pounds for $3.26 (3 / .92), buy their Big Mac, and still have money left over.
But in reality, the price of the Big Mac (and other, more important goods) will be a different number in each country. The only way to really know the answer is to price out a “basket” of common goods in each currency and country. For instance, if the basket costs $100 in the US, but £90 in England, the dollar has more power: an American with $100 would go to England, change his money for £92 (100 * .92), buy the basket, and still have £2 left over. A Brit with £90 would arrive in the US, only be able to get $97.83 (90 / .92), and couldn’t afford the basket.
*You said Euros, but used the Pound symbol. I’ve gone with pounds.
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