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Explain the law of one price

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Reference no: EM133072035

The spot exchange rate is 1.1289 AUD per USD, the price of a Big Mac hamburger in the United States is US$ 4.62, and the price of a Big Mac hamburger in Australia is A$ 5.05. Based on the law of one price, is the Australian dollar undervalued, overvalued, or correctly priced against the US dollar? If the Australian dollar is undervalued or overvalued, by how much? Show your calculations.

Reference no: EM133072035

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