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What would be the cost of a big mac in south africa in us

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Reference no: EM132244220

In January 2019, the price of a Big Mac in South Africa was 31 rand. The exchange rate between the South African rand and US dollar was 13.87 rand/dollar.

a. What would be the cost of a Big Mac in South Africa in US dollars (convert the price in South African rand to US dollars)?

b. The current cost of a Big Mac in the US is $5.58. If the law of one price holds for the Big Mac in the United States and South Africa, what would be the exchange rate between the rand and the dollar?

c. Compare the actual exchange rate between the rand and the dollar of 13.87 rand/$1 to the exchange rate suggested by the law of one price in part b. Is the rand overvalued or undervalued according to our application of the law of one price?

Reference no: EM132244220

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