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Hello could you help with this Question 2 1. According to the Big-Mac Index produced by The Economist (https://www.economist.com /big- mac-index) published in January 24,
Hello could you help with this
Question 2 1. According to the Big-Mac Index produced by The Economist (https://www.economist.com /big- mac-index) published in January 24, 2024, which are the two most overvalued curren- cies against the US dollar in December 2023, and which are the two most undervalued currencies against the US dollar? Explain briefly how this over- or undervaluation metric is calculated? 2. How could you use this information, together with the assumption that the law of one price holds for the Big Mac in the medium term (and that nominal prices in their local currency are sticky), to forecast whether each currency will appreciate of depreciate against the US dollar in the medium term? 3. Suppose that rather than assuming the law of one price (which is a very strong assump- tion), you are willing to assume in each country that relative PPP holds for the Big Mac on average over long periods of time. How would you use the above information and historic Big Mac prices and exchange rates to forecast whether each currency will appreciate or depreciate against the US dollar in the medium term? Your answers can be qualitative, and not quantitativeStep by Step Solution
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