Question: a Based on the information provided in the table above, compute the theoretical USD/HKD exchange rate (i.e. the value of X) as implied by

theoretical USD/HKD exchange rate (i.e. the value of X) as implied by

a Based on the information provided in the table above, compute the theoretical USD/HKD exchange rate (i.e. the value of X) as implied by the Purchasing Power Parity (PPP) theory. (6 marks) b Based on the information provided in the table above, calculate the US dollar price of Big Mac in Britain (i.e. the value of Y). (6 marks) c Compare the market exchange rate and the theoretical PPP exchange rate. Identify the percentage of undervaluation/overvaluation of the Hong Kong dollar (HKD) and British pound (GBP) against the US dollar. (8 marks) Suppose you collected the following financial information from various sources: Financial information as of July 2022 Location Big Mac prices in local currency Market exchange Local Big Mac (July 2022) rate to 1 USD (July 2022) prices in USD Theoretical exchange rate implied by PPP United States USD5.15 USD5.15 1.0000 Hong Kong HKD26.50 7.8500 USD3.38 X Britain GBP5.80 0.9915 Y 1.1262

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