Which currency is overvalued in the current spot market

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Reference no: EM13730442

Mid-size cars rent for 70€ per day in Berlin and 60£ per day on London. The current spot market exchange rate is 1.27 €/£.

a. Using rental cars as the reference price, what is the implied PPP exchange rate in €’s per £?

b. Which currency is overvalued in the current spot market, the € or the £?

c. By what percentage is the currency [from part (b) above] overvalued?

Reference no: EM13730442

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