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What is the expected exchange rate

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Question - Suppose the price of a Big Mac is 4 USD (as it happens, it's currently $3.99). By contrast, a Big Mac in Canada (Oh! Canada!) is 5 CAD. Using purchasing power parity what is the expected exchange rate between the dollar and Canadian dollar? As of October 2021, the actual exchange rate is 1.24 CAD/USD. Do you think the Big Mac index perform a good job predicting this exchange rate? If not, explain why not. If so, what do you think is unique or important in the relationship between the US and Canada that makes this so?

Reference no: EM133277839

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