N1

In recent years China has been routinely accused of currency manipulation. In this question you are asked to use the freely available finder.com Starbucks Index to investigate these claims. Go to http://www.finder.com/starbucks-index , to access the most recent version of their data.

a. What is the most recent price of a Starbucks tall latte in China? What is the implied yuan/dollar exchange rate based on these prices?

b. Does this measure suggest that the Chinese yuan is overvalued or undervalued relative to the dollar? Why might this be beneficial to the Chinese economy?

c. The fundamental assumption of this index is that the cost of producing a Starbucks tall latte is identical across countries. Why might this assumption be violated? How might this violation affect your answer in part (b)?

d. Which three countries are most undervalued relative to the U.S. dollar in the most recent year? Which three are most overvalued?