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You are told that the exchange rate between

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1. Suppose that a Big Mac costs $5.79 in the US, and CHF 6.5 in Switzerland.

You are told that the exchange rate between $ and CHF is CHF=$0.5

From what you know about PPP theory and Law of One Price, the swiss franc is...

Answers:

A.overvalued! It should be about 5.79/6.50

B.undervalued! It should be about 6.50/5.79

C.undervalued! It should be about 5.79/6.50

D.overvalued! It should be about 6.50/5.79

2.Suppose that a Big Mac costs $5.79 in the US, and Yuan 20 in China.

You are told that the exchange rate between $ and Yuan is Yuan=$2

From what you know about PPP theory and Law of One Price, the Yuan is...

Answers:

A.undervalued! It should be priced at 20/5.79

B.overvalued! It should be priced at 5.79/20

C.overvalued! It should be priced at 20/5.79

D.undervalued! It should be priced at 5.79/20

Reference no: EM132147836

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