Question: 6. In practice, people often use The Big Mac index, which provides an interesting perspective into the determination of foreign exchange rates; in Canada, a

6. In practice, people often use The Big Mac index, which provides an interesting perspective into the determination of foreign exchange rates; in Canada, a Big Mac is selling at C$6.06, while it costs P200.60 in the Philippines. The official exchange rate is C$1 = P36.94. If the purchasing power of parity (PPP) is considered, is the peso overvalued or undervalued? What will be your answer if Big Mac costs P225 in the Philippines?

7. The 15-year USD-denominated sovereign bond of the Philippines yields 8% in the market, while the 15-year US Treasury bond yields 5%. The standard deviation of the Philippine Stock Exchange Index (PSEi) is 20%, while the standard deviation of the USD-denominated sovereign bond index of the Philippines is 12%. How much is the country risk premium (CRP) for the FDIs in the Philippines?

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