When the Chips Are Down The Economist magazine uses the price of a Big Mac to determine whether a currency is undervalued or overvalued. In July 2012, the price of a Big Mac was $4.33 in New York, 15.65 yuan in Beijing, and 6.50 Swiss francs in Geneva. The exchange rates were 6.37 yuan per U.S. dollar and 0.98 Swiss francs per U.S. dollar.

Source: The Economist, July 25, 2012

a. Was the yuan undervalued or overvalued relative to purchasing power parity?

b. Was the Swiss franc undervalued or overvalued relative to purchasing power parity?

c. Do you think the price of a Big Mac in different countries provides a valid test of purchasing power parity?