Suppose in 1992, the average price level in UK was 100, and that in Japan was also 100. In the foreign exchange market 1 pound was exchanged for 150 Japanese yen. In 2012, the price level in UK had risen to 280 and the price level in Japan had risen to 360.

(i) According to the relative PPP theory, what should the pound-yen exchange rate be in 2012?

(ii) If the exchange rate on the market is 200 yen per pound, is yen overvalued or undervalued? Why?