Question:
Fill in the missing values in the following table. Assume that the Big Mac is selling for $4.79 in the United States. Explain whether the U.S. dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen in the future to each exchange rate if the actual exchange rate moves toward the purchasing power parity exchange rate. Finally, calculate the implied exchange rate between the Russian ruble and the New Zealand dollar and explain which currency is overvalued in terms of Big Mac purchasing power parity.
Transcribed Image Text:
Implied Exchange Rate Big Mac Price Country Actual Exchange Rate 2,100 pesos Chile 642.45 pesos per dollar 17.5 shekels Israel 3.78 shekels per dollar 56.82 rubles per dollar Russia 107 rubles 1.51 New Zealand New 5.9 New Zealand Zealand dollars dollars per U.S. dollar