Consider the Following Table, Adapted from the Big Mac Index

question 139

Essay

Consider the following table, adapted from the Big Mac Index computed by The Economist magazine. The table shows prices of a Big Mac in local currencies and the current nominal exchange rate between the local currency and the Canadian dollar.

a. Compute the Big Mac prices in Canadian dollars for each country.
b. Compute the PPP exchange rate.
c. Compute the overvaluation or undervaluation of each country's currency with respect to the Canadian dollar. A currency is considered to be overvalued if the nominal exchange rate is less than the PPP exchange rate. Overvaluation is the percentage difference between the nominal and the PPP exchange rate, computed using the following formula: [(PPP exchange rate - Nominal exchange rate) / Nominal exchange rate]*100.
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