Implied ppp exchange rate is mexican peso

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Reference no: EM131868104

1. According to the Big Mac Index, the implied PPP exchange rate is Mexican Peso 8.58/$1 but the actual exchange rate is Peso 11.80/$1. Thus, at current exchange rates the peso appears to be ________ by ________.

a) undervalued; approximately 21%

b) overvalued; approximately 27%

c) undervalued; approximately 27%

d) overvalued; approximately 21%

2. One year ago the spot rate of U.S. dollars for Canadian dollars was USD1/CAD1. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately ________.

a) USD 0.96/CAD 1

b) USD 1.04/CAD 1

c) USD1/CAD1

d) Relative PPP provides no guide for this type of question.

Reference no: EM131868104

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