Assume the Implied PPP Rate of Exchange of Mexican Pesos

question 58

Multiple Choice

Assume the implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50 according to the Big Mac Index. Further, assume the current exchange rate is Peso 10.80/$1. Thus, according to PPP and the Law of One Price, at the current exchange rate the peso is:

• A) overvalued.
• B) undervalued.
• C) correctly valued.
• D) There is not enough information to answer this question.

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