22.1 Purchasing Power Parity One of the more famous examples of a violation of absolute purchasing power parity is the Big Mac index calculated by The Economist. This index calculates the dollar price of a McDonald’s Big Mac in different countries. You can find the Big Mac index by going to www.economist.com, following the "Markets & Data" link and then the "Big Mac index " link. Using the most recent index, which country has the most expensive Big Macs? Which country has the cheapest Big Macs? Why is the price of a Big Mac not the same in every country?

22.2 Inflation and Exchange Rates Go to www.marketvector.com and follow the "Exchange Rates" link. Select the "Australian Dollar" link. Is the U.S. dollar expected to appreciate or depreciate compared to the Australian dollar over the next six months? What is the difference in the annual inflation rates for the United States and Australia over this period? Assume that the anticipated rate is constant for both countries. What relationship are you relying on in answering?

22.3 Interest Rate Parity Go to the Financial Times site at www.ft.com, click on the "Markets" link and then the "Currencies" link. Find the current exchange rate between the U.S. dollar and the euro. Next, follow the "Currencies home" link and the "Money rates" link to find the U.S. dollar LIBOR and the Euro LIBOR interest rates. What must the one-year forward rate be to prevent arbitrage? What principle are you relying on in your answer?