Question
Big Mac Prices and (spot) nominal exchange rates with respect to the US dollar and GDP per capita in USD are presented in the table
Big Mac Prices and (spot) nominal exchange rates with respect to the US dollar and GDP per capita in USD are presented in the table below for few countries (source: The Economist). We focus on Purchasing Power Parity (PPP) based on Big Mac prices.
Country | Big Mac Price in local currency | Spot nominal exchange rate (mid-quotes) with respect to the USD (Foreign currency units/USD) |
USA | 3.2 USD | - |
Switzerland | 6.30 CHF | 1.25 |
Russia | 50 RUB | 25 |
Taiwan | 75 TWD | 33 |
Thailand | 62 THB | 34.7 |
Which answer(s) are correct?
a. According to PPP, the Swiss Franc is undervalued with respect to the US dollar
b. PPP would be verified if a Big Mac in Taiwan would cost approximately 106 Taiwan Dollars.
c. The exchange rate implied by PPP for Russia is close to 15 RUB/USD.
d. According to PPP, the Russian ruble is overvalued by roughly 40% with respect to the US dollar
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