Value of the dollar relative to the euro-pound and yen

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China's currency, the "renminbi," is denominated in yuan units. The yuan is pegged to a basket of world currencies. What if China freely floated the yuan? How would the dollar to yuan exchange rate be affected? In evaluating this possibility, take into account that the U.S. imports large quantities of Chinese exports.

Browse the Internet and find the latest Big Mac Index data. What does the data show in terms of the value of the dollar relative to the euro, pound, and yen? Are these currencies over- or undervalued relative to the dollar?

Some observers believe that large U.S. government deficits will lead to higher inflation in the future. If this did happen, how could the PPP theory be used to forecast the impact of this higher inflation on the value of the dollar?

Reference no: EM132275565

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