1- Compute the implied exchange rate between the US burgers and the burger in the 5 countries (Swiss franc (SFR), Sri Lankan rupee (LKR), Thai baht (BHT), Turkish lira (TRY) and Venezuelan bolivar (VEF). Compare your results with the actual exchange rates reported in column (2) of Table 1.

2- Which currencies are overvalued and which are undervalued compared to the USD? By how much (in percent)?

*ANSWER SHOWING THE STEPS*

Table 1. Raw data for the Big Mac index as of July 2015 Country Burger price in local currency (LC) Sri Lanka Switzerland 6.5 Thailand Turkey Venezuela United States Sources The Economist (July 2015). http://www.economist.comcontent big-mc-index Exchange rate (LC/USD) 13385 0.95 34.09 2.65 197 108 10.25