According to the Economist Magazine Big Mac January 2021 survey ( https://www.economist.com/big-mac-index ), the price of a Big Mac in China is CNY 22.40, while the price of a Big Mac in the Euro area is Euro 4.25.If the actual spot #CNY/1euro exchange rate on the same date is CNY 7.90/euro, then is the Chinese Yuan over- or undervalued relative to the Euro at the actual exchange rate compared to its PPP-implied value? What does this result imply about the future direction of the #CNY/1euro exchange rate if PPP holds over time?

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To determine if the Chinese Yuan CNY is overvalued or undervalued relative to the Euro at the actual ... View the full answer