6. Argentine Peso and PPP. The Argentine peso was fixed through a currency board at Ps1.00/$ through- out the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003, it was trading at Ps3.20/$. During that one year period Argentina's inflation rate was 20% on an annualized basis. Inflation in the United States during that same period was 2.2% annualized.

a. What should have been the exchange rate in January 2003 if purchasing power parity held?

b. By what percentage was the Argentine peso undervalued on an annualized basis?

c. What were the probable causes of undervalua- tion?