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Question 2) The Economist magazine is famous for its publication of the Big Mac index -- a table of Big MacTM prices in different countries
Question 2) The Economist magazine is famous for its publication of the Big Mac index -- a table of Big MacTM prices in different countries around the world. The use of the Big Mac allows for a highly standardized product sold throughout the world. Given the following abbreviated table: Country PriceBig Mac China Rmb 10 U.K. E1.25 U.S. $2.50 Suppose that the exchange rate between China and the U.K is: Rmb (Renminbi) 15 = E1.00 and that the Big MacTM could be used as a standardized commodity -- easily transported and not perishable. Complete the following: f1,000 = Rmb_? Sell Pounds / Buy Renminbi on foreign exchange markets = Big MacsTM Use Renminbi to buy Big Macs in China =f ? Transport (assume no cost) and sell the Big Macs in London
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