Try your hand at testing the LOOP. (For example, you can check the purchase

price of a book at Amazon.com from their sales sites in the US (www.amazon.com), U.K. (www.amazon.co.uk), and Germany (www.amazon.de). Alternatively, you can be creative and come up with your own test).

Use todays spot exchange rates of the US$ against the GBP and Euro and mention the spot rates that you have used in your answer.

(a) What are the predicted exchange rates from PPP?

(b) Compare the PPP rates with the spot rates. Does PPP hold? Which

currency is overvalued and by how much (Give answer in %)?

Hint: See Burgernomics discussion. Make sure you quote your PPP exchange rate and spot rate in the same way, i.e. direct or indirect.