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Ch03_Problems

# Ch03_Problems - Problem 3.1 The Latin American Big Mac...

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Problem 3.1 The Latin American Big Mac Index: Historical Big Mac Index: April 1997 (1) (2) (3) (4) (MBF 8th edition) Big Mac Actual Big Mac Implied Price in local exchange rate Prices in PPP of the Country currency (April 7, 1997) dollars dollar United States (dollar) 2.42 ---- 2.42 1.00 Argentina (peso) 2.50 1.00 2.50 1.03 Brazil (real) 2.97 1.06 2.80 1.23 Chile (peso) 1,200.00 417.00 2.88 495.87 Mexico (peso) 14.90 7.90 1.89 6.16 Big Mac Index: March 1999 (1) (2) (3) (4) (MBF 9th edition) Big Mac Actual Big Mac Implied Price in local exchange rate Prices in PPP of the Country currency (March 30, 1999) dollars dollar United States (dollar) 2.43 ---- 2.43 1.00 Argentina (peso) 2.50 1.00 2.50 1.03 Brazil (real) 2.95 1.73 1.71 1.22 Chile (peso) 1,250.00 484.00 2.58 516.53 Mexico (peso) 19.90 9.54 2.09 8.22 Big Mac Index: April 2002 (1) (2) (3) (4) (MBF 10th edition) Big Mac Actual Big Mac Implied Price in local exchange rate Prices in PPP of the Country currency (April 23, 2002) dollars dollar United States (dollar) 2.49 ---- 2.49 1.03 Argentina (peso) 2.50 3.13 0.80 1.03 Brazil (real) 3.60 2.34 1.54 1.49 Chile (peso) 1,400.00 655.00 2.14 578.51 Mexico (peso) 21.90 9.28 2.36 9.05 Notes: Column 3 = Column 1 ÷ Column 2; Column 4 = Column 1 ÷ Big Mac US\$ Price; Column 5 = Column 4 ÷ Colum This textbook has used the Economist magazine's Big Mac Index for many years and many editions. Below are the Big M actual exchange rates for select Latin American countries as printed in the last three editions of this textbook. Use the da calculation of the implied PPP value of the currency versus the U.S. dollar and the calculation as to whether that currenc %) or overvalued (+%) versus the U.S. dollar.

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(5) Local currency under (-) / over (+) valuation 3.3% 15.8% 18.9% -22.1% (5) Local currency under (-) / over (+) valuation 3.3% -29.5% 6.7% -13.8% (5) Local currency under (-) / over (+) valuation -67.0% -36.4% -11.7% -2.5% mn 2. Mac prices and ata to complete the cy is undervalued (-
Big Mac Index: April 1997 (1) (MBF 8th edition) Big Mac Price in local Country currency United States (dollar) 2.42 Argentina (peso) 2.50 Brazil (reais) 2.97 Chile (peso) 1,200.00 Mexico (peso) 14.90 Big Mac Index: March 1999 (1) (MBF 9th edition) Big Mac Price in local Country currency United States (dollar) 2.43 Argentina (peso) 2.50 Brazil (reais) 2.95 Chile (peso) 1,250.00 Mexico (peso) 19.90 Big Mac Index: April 2002 (1) (MBF 10th edition) Big Mac Price in local Country currency United States (dollar) 2.49 Argentina (peso) 2.50 Brazil (reais) 3.60 Chile (peso) 1,400.00 Mexico (peso) 21.90 Notes: Column 3 = Column 1 / Column 2; Column 4

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(2) (3) (4) (5) Actual Big Mac Implied Local currency exchange rate Prices in PPP of the under (-) / over (+) (April 7, 1997) dollars dollar valuation ---- 2.42 1.00 1.00 1.06 417.00 7.90 (2) (3) (4) (5) Actual Big Mac Implied Local currency exchange rate Prices in PPP of the under (-) / over (+) (March 30, 1999) dollars dollar valuation ---- 2.43 1.00 1.00 1.73 484.00 9.54 (2) (3) (4) (5) Actual Big Mac Implied Local currency exchange rate Prices in PPP of the under (-) / over (+) (April 23, 2002) dollars dollar valuation ---- 2.49 1.03 3.13 2.34 655.00 9.28 = Column 1 / Big Mac US\$ Price; Column 5 = Column 4 / Column 2.
Problem 3.3 Argentine peso and PPP Assumptions Value Spot exchange rate, fixed peg, early January 2002 (Ps/\$) 1.0000 Spot exchange rate, January 29, 2003 (Ps/\$) 3.2000 US inflation for year (per annum) 2.20% Argentine inflation for year (per annum) 20.00% a. What should have been the exchange rate in January 2003 if PPP held?

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Ch03_Problems - Problem 3.1 The Latin American Big Mac...

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