1- The following table was prepared based on Big Mac Prices and Actual exchange rates observed on March 25th 2011. Based on PPP implied exchange rates calculated from Big Mac prices, determine if Egyptian Pound, Chinese Yuan, Malaysian Ringit and Colombian Peso are over or under valued against the US dollar? What is the extent of under or overvaluation? Show your calculations and explain how you drew your conclusions.
Country Currency Code Big Mac Price Local Currency Big Mac Price In Dollars Actual Dollar Exchange Rate March 25, 2011
/$ China CNY 13.73 $2.09 6.5581

Egypt EGP 13.52 $2.27 5.9434
Malaysia MYR 7.33 $2.43 3.0223
Colombia COP 8282.00 $4.42 1873.4000
United States USD 3.80 $3.80 1.0000

Yuan:
Implied PPP of the dollar = price of big mac in China in Yuan/ Price of big mac in the U.S. in $ = YUAN 13.73/$3.80 ≈ Yuan 3.61/$

under (-) over (+) valuation against the dollar: Yuan 3.61/$ - Yuan 6.5581/$ ÷ Yuan 6.5581/$ = -0.44 ≈ -44%

Such percentage indicates that the Chinese yuan is undervalued by 44% versus the U.S. dollar.

Egyptian Pound

Implied PPP of the dollar = price of big mac in Egypt in local currency / Price of big mac in the U.S. in $ = Egyptian pound 13.52/$3.80 ≈ Egyptian pound 3.55/$

under (-) over (+) valuation against the dollar:= implied rate – actual rate / actual rate= /$ = 3.55- 5.9434 /5.9434 = -0.4026 = -40%

Such percentage indicates that the Egyptian pound is undervalued by 40% versus the U.S. dollar

Malaysian Ringit

Implied PPP of the dollar = price of big mac in Malaysia in local