Use the following information concerning Forex and the Big Mac Index (info included later on this sheet)
to answer the questions included.
Brazilian Real (BRL)
Chinese Yuan (RMB)
Euro (EUR)
Japanese Yen (JPY)
* Info from Wells Fargo
In USD
$ .20/ BRL
$ .16 / CNY
$ 1.10/EUR
$0.0084/JPY
Per USD
BRL 4.87/USD
RMB 6.85/USD
EUR .91 / $
JPY 119.47/ $
1. Fill in any missing numbers in the table above (round to 2 digits for BRL, CNY & EUR; 4 digits for JPY).
2. Which column is a direct quote of the dollar? In USD or Per USD (underline or highlight one)
3. If the Euro is selling forward In USD for 1.12, is the Euro selling forward at a discount or premium?
(underline or highlight one and explain your reasoning) Premium because it is currently selling for
$1.10 and if future is $1.12 you would make a 2 cents profit per dollar.
b. Based on the info above, is the Euro expected to appreciate or depreciate? Underline/highlight
one and explain your reasoning. The Euro is expected to appreciate because of the increase by 2
cents.
4. Three years ago, the exchange rate for the Real was BRL 3.93/$. Has the BRL appreciated or
depreciated? By what percentage? It has depreciated from $4.87 to $3.93, which is a 19% decrease.
How would this affect the price of U.S. exports to Brazil? The price of the US exports would
increase.
5. Figure the cross rate for the BRL to JPY. The cross rate is BRL 0.04076/JPY
In January of the year being used, the average price of a Big Mac in the U.S. was $5.81; the price of
a Big Mac in Brazil was BRL 22.90
6. What is the Implied PPP for the BRL/USD? BRL 3.94/USD
7. Using the actual exchange rate from above, the BRL is overvalued or undervalued (underline or
highlight one)?
By what percent? _19______%. (show your work below)