Question
Suppose the current exchange rates between the US dollar ($) and the Indian rupee (INR), Thai Bhat (THB) and Philippine peso (PHP) are 68.0724 INR/$,
Suppose the current exchange rates between the US dollar ($) and the Indian rupee (INR), Thai Bhat (THB) and Philippine peso (PHP) are 68.0724 INR/$, 32.1836 THB/$, and 52.3803 PHP/$, respectively. In addition, you observe that a Big Mac costs 180.00 INR in India, 119.00 THB in Thailand, and 134.00 PHP in the Philippines. If the US average price of a Big Mac is 5.28$,
a) What would the Big Mac Index imply for the over- or undervaluation of these currencies vis-à-vis the US$?
b) If you were a foreign exchange trader, what would you do in response to the answer?
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Answer a The Big Mac is undervalued in all the countries as shown in the table below based on USD Fo...
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International Economics Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz
11th Edition
134519574, 9780134521046 , 978-0134519579
