Question

Assume that the Big Mac is selling for $4.93 in the United States. In the table below, fill in the implied exchange rate and then state whether the currency is overvalued or undervalued versus the U.S. dollar. (Enter your responses rounded to two decimal places.) Implied Exchange Rate Actual Exchange Rate Country Big Mac Price Overvalued or Undervalued Chile 2,100 pesos 715.22 pesos/$ pesos/$ shekels/$ Israel 16.9 shekels 3.94 shekels/S Russia 114 rubles 74.66 rubles/S rubles/$ NZS/$ New Zealand 5.9 New Zealand $ 1.51 NZS/$ Source: "The Big Mac Index," Economist, January 12, 2017 ruble/NZ$. (Enter your response rounded to two decimal places.) This implies that the is overvalued The implied exchange rate between the Russian ruble and the New Zealand dollar is relative to purchasing power parity.

Answer 1

Country	Big Mac Price	Implied exchange rate	Actual exchange rate	Over valued or Under valued
Chile	2100	425.96	715.22	Under valued
Israel	16.9	3.43	3.94	Under valued
Russia	114	23.12	74.66	Under valued
New Zealand	5.9	1.20	1.51	Under valued

Implied exchange rate between Russia and New Zealand = 114 / 5.9 = 19.32 rubble /  NZ$

Actual exchange rate between Russia and New Zealand = 74.66 / 1.51 = 49.44 rubble / NZ $

New Zealand dollar is over valued against Russian Ruble