Suppose the current exchange rates between the US dollar ($) and the Indian rupee (INR), Thai Bhat
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Question:
Suppose the current exchange rates between the US dollar ($) and the Indian rupee (INR), Thai Bhat (THB) and Philippine peso (PHP) are 68.0724 INR/$, 32.1836 THB/$, and 52.3803 PHP/$, respectively. In addition, you observe that a Big Mac costs 180.00 INR in India, 119.00 THB in Thailand, and 134.00 PHP in the Philippines. If the US average price of a Big Mac is 5.28$,
a) What would the Big Mac Index imply for the over- or undervaluation of these currencies vis-à-vis the US$?
b) If you were a foreign exchange trader, what would you do in response to the answer?
Expert Answer:
Answer a The Big Mac is undervalued in all the countries as shown in the table below based on USD Fo... View the full answer
Related Book For 
International Economics Theory and Policy
ISBN: 978-0134519579
11th Edition
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz
Posted Date:
