Question

16. Big Mac costs $3.73 in the US and A$4.35 in Australia. Given that the actual exchange rate A$/U$ = 1.0122, calculate the implied PPP rate and determine which currency is overvalued/undervalued. Indicate whether it costs more/less to for a US consumer (Australian) to buy Big Mac in Australia (US).

17. Big Mac costs $3.73 in the US and 7.05 Malaysian Ringgit (R) in Malaysia. Given that the actual exchange rate R/$ = 3.1011, calculate the implied PPP rate and determine which currency is overvalued/undervalued. Indicate whether it costs more/less for a US (Malaysian) consumer to buy Big Mac in Malaysia (US).

18. Big Mac costs $3.73 in the US and 320 Japanese Yen (Y) in Japan. Given that the actual exchange rate Y/$ = 81.5025, calculate the implied PPP rate and determine which currency is overvalued/undervalued. Indicate whether it costs more/less to for a US (Japanese) consumer to buy Big Mac in Japan (US).

19. Big Mac costs $3.73 in the US and 13.20 Chinese Yuan (Y) in China. Given that the actual exchange rate Y/$ = 6.6543, calculate the implied absolute PPP rate and determine which currency is overvalued/undervalued. Indicate whether it costs more/less for a US (Chinese) consumer to buy Big Mac in China (US).

Answer 1

Bigmar 3.73 Actual exchange rate AS 4.35 A&1-0122/& Implied sale (or) ppp Rate. A$4.35/$3.73 • A$ 1.1662/4 In the other words scaphed exchango sale is more than actual sale it means As is overvalued - avevalued . 1-1662 - 1.0122, 15.21/ CA$) A& Overvalued us & undervalued Bignal 3.73 320 Acto ensole - 81.5025 4/$. Implied as oppoate & 320/3.73 85.1909 4/2 y over valued $. unda valued Op is colore buys in Japan he has to spend 320/81.500 a $3.9263 (costs more) off yovernolued (85-1909) -(81.500s) - 5.26% 81.5025 & If us Consumer buys Brynacin Australia he hoto Spend 4.35/1.0122 34.2976 us where as he can get it so u$ 3.73 in us (as cost more) Bignac Act 3.73 ex. Rate сну 13.2 CH1 $ = 6.6543. emplede a sppp sate - 13-2/373 = 3.5389 CHY- undervalued us - over valued 17) o Bismac 3.73 Act. Ex. Rate ampled colpppoole Ras under valued & overvalued R 7.05 - R $ 3.10ll - 7.05/2.73 1.8901 8/8 1-3901 - 3-101, 3905% 3.1011 of us customer buys in china the has to spend 13.2/6.650g = 1.98.37$ chas to spend less) CHY onder valued 3.5389-6.6548 6.6543 46.82% 28 i consumer buys Bignae in malassia he hato. Spend hoshiagot sa 7.05/3.104 - 2.27134 Ccost ley)