Question
4. The Economist publishes annually the hamburger standard by which they compare the prices of the McDonalds Corporation Big Mac hamburger around the world. The
4. The Economist publishes annually the hamburger standard by which they compare the prices of the McDonalds Corporation Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. A Big Mac costs USD2.54 in the United States and JPY294 in Japan. The current exchange rate is 124 Japanese yen per U.S. dollar. (a) What is the real exchange rate between the USD and the JPY?
(b) What is the PPP-implied exchange rate as hypothesized by the Hamburger index?
(c) Is the Big Mac hamburger in Japan correctly priced, undervalued or overvalued? By what percentage
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