In addition to its Big Mac index, The Economista magazine started to publish a PPP index based on the price of a tall latte at Starbucks coffee shops around the world. This problem is intended to show how to use such an index to determine whether a currency is over- or undervalued. You are given the following information:

Calculate the implied purchasing power parity (PPP) exchange rate for each of the fictional countries and explain which currencies are over- or undervalued.

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Coffee price in U.S. dollars 1.50 1.20 2.25 2.70 90 Actual Exchange Rate Country United States Javaland Uppercaffina Isle of Roast Erehwon 2.35 6.00 1.65 4.35