It is an ongoing issue in exchange rate manipulation. The United States has been protesting for many years that renminbi or yuan (CNY), the currency in China, is being undervalued. You would like to apply the concept of Purchasing Power Parity (PPP) to find out if such accusation is correct. Following are data you have collected from July 2016 Big Mac Index. July 2016 USD exchange rate Location United States China Hong Kong Big Mac prices in local currency USD4.5567 CNY 16.00 HKD17.00 6.1341 7.7567 (a) Analyse whether the accusation by the United States regarding undervaluation of the renminbi at that time was valid. Find out the percentage of undervalue/overvalue of the renminbi against the US dollar to support your view. (b) Some countries encourage manipulation in their exchange rate relative to those of some other countries as a means of relieving foreign trade imbalances. Evaluate each of the following scenarios regarding its impact that would have on the Hong Kong importers and Hong Kong exporters doing business with the foreign country: i The officials of Hong Kong Monetary Authority (HKMA) announce that they are comfortable with the rising euro relative to the Hong Kong dollar ii The Japanese government announces that it will print billions of new yen and inject them into the economy in an effort to boost the local economic activities. It is an ongoing issue in exchange rate manipulation. The United States has been protesting for many years that renminbi or yuan (CNY), the currency in China, is being undervalued. You would like to apply the concept of Purchasing Power Parity (PPP) to find out if such accusation is correct. Following are data you have collected from July 2016 Big Mac Index. July 2016 USD exchange rate Location United States China Hong Kong Big Mac prices in local currency USD4.5567 CNY 16.00 HKD17.00 6.1341 7.7567 (a) Analyse whether the accusation by the United States regarding undervaluation of the renminbi at that time was valid. Find out the percentage of undervalue/overvalue of the renminbi against the US dollar to support your view. (b) Some countries encourage manipulation in their exchange rate relative to those of some other countries as a means of relieving foreign trade imbalances. Evaluate each of the following scenarios regarding its impact that would have on the Hong Kong importers and Hong Kong exporters doing business with the foreign country: i The officials of Hong Kong Monetary Authority (HKMA) announce that they are comfortable with the rising euro relative to the Hong Kong dollar ii The Japanese government announces that it will print billions of new yen and inject them into the economy in an effort to boost the local economic activities