International Finance Project

Part II (Table and chart together with brief description preferred. Please indicate the information sources for each questions. 50 credit points in total).

1. Big Mac Index and PPP. (9 points)

1. Use Big Mac or another identical product/service to deduce the Law of One Price exchange rate. (3 points)
2. What is the current actual market rate? Compare with the above implied PPP exchange rate and compute the degree to which the foreign currency is either undervalued (-%) or overvalued (+%) versus the U.S. dollar (refer to example in section 6-1). (6 points)