Question: The table below presents the Big Mac Index published by the Economist in January 2016 Country Big Mac in local currency Price in local currency:

The table below presents the Big Mac Index published by the Economist in January

2016

Country Big Mac in

local currency

Price in local currency: Dollar Exchange Rate

China 17.60 6.56

Euro Area 3.72 0.93

US 4.93 1.00

i. What is the PPP spot rate for the CNY/EUR exchange rate?

ii. Compute the real exchange rate defined as units of Chinese Big Macs per

Euro Big Mac.

iii. Compute the percentage undervaluation/overvaluation of the Chinese

yuan against the Euro.

iv. Compute the percentage undervaluation/overvaluation of the Euro against

the Chinese yuan.

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