Go to the Web site of the Federal Reserve Bank of St. Louis Federal Reserve (FRED) (research.stlouisfed.org/fred2/) and find the most recent values for the Japan/U.S. Foreign Exchange Rate (DEXJPUS), China/U.S. Foreign Exchange Rate (DEXCHUS), and the Mexico/U.S. Foreign Exchange Rate (DEXMXUS).
a. Explain whether the exchange rates are quoted as U.S. dollars per unit of foreign currency or units of foreign currency per U.S. dollar.
b. Suppose a Big Mac sells for 300 yen in Japan, 14 yuan in China, and 34 pesos in Mexico. What is the price of a Big Mac in each country in terms of U.S. dollars?
c. Are your results from part (b) consistent with the theory of purchasing power parity? Briefly explain.
d. Assuming no transportation costs and a no-cost means of preserving Big Macs while they are being transported, explain in which county you would want to purchase a Big Mac and in which country you would want to sell the same Big Mac in order to make the highest profit possible.