question1-USD price of Big Mac in South Africa and the US are $4.50 and $3.90 re

Question

question1-USD price of Big Mac in South Africa and the US are $4.50 and $3.90 respectively. The price of Big Mac in South African Rand is also 37.05. PPP implied exchange rate of South African Rand is 9.50 SAR per dollar. What is the extent of SAR undervaluation or overvaluation (Calculate it in percentages) Hint: You need to find the exchange rate between SAR and USD first from the information given, then find the percent under/over valuation.

13.36% Undervaluation

15.38% Overvaluation

20% overvaluation

10% Undervaluation

question2- Chase Econometrics has just published projected inflation rates for the United States and Euro-zone for the next five years. U.S. inflation is expected to be 2% per year, and Euro-zone inflation is expected to be 3.5% per year. If the current exchange rate is 1.4500 $ per

13.36% Undervaluation

15.38% Overvaluation

20% overvaluation

10% Undervaluation

Explanation / Answer

Since Time is less, I shall try to answer this in the comments and then you can rate my statement if you think the answer is complete. Thanks

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