Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00 _____
Wonderland

7.86 baht

0.52
Oz

641 rupees

42.11
Pandora

35.08 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the sol may be:

Question

Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00	_____
Wonderland

7.86 baht

0.52	
Oz

641 rupees

42.11	
Pandora

35.08 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the sol may be:

BlackTom AI · Accepted Answer

Implied exchange rate for a currency (in units of local currency per peso here) is found by dividing the local Big Mac price by the base-country Big Mac price (Neverland). Compare that implied rate to the actual exchange rate: if actual LCU/peso is lower than implied, the local currency is stronger than PPP implies (overvalued); if actual is higher, the local currency is weaker (undervalued).

Step-by-step calculations (base: Neverland Big Mac = 16.25 pesos, Neverland actual ER = 1.00 LCU/peso):
1. Neverland implied ER = 16.25 / 16.25 = 1.00 pesos/peso (reference).
2. Wonderland implied ER = 7.86 / 16.25 = 0.4836923 ≈ 0.484 baht per peso.
   - Actual = 0.52 baht/peso. Actual (0.52) > implied (0.484) → more baht per peso than PPP → baht is undervalued relative to the peso.
3. Oz implied ER = 641 / 16.25 = 39.4461538 ≈ 39.45 rupees per peso.
   - Actual = 42.11 rupees/peso. Actual (42.11) > implied (39.45) → rupee is undervalued.
4. Pandora implied ER = 35.08 / 16.25 = 2.1590769 ≈ 2.159 soles per peso.
   - Actual = 2.00 soles/peso. Actual (2.00) < implied (2.159) → fewer soles per peso than PPP suggests → sol is overvalued.

Why this means the sol is overvalued: PPP (implied ER) says one peso should buy about 2.159 soles based on Big Mac prices. In the real market one peso buys only 2.00 soles, so the sol buys more pesos than PPP predicts (it is relatively strong); hence the sol is overvalued.

Why other possibilities are incorrect: “Undervalued” would require actual LCU/peso > implied (not true for the sol). “At parity” would require actual ≈ implied (2.00 ≠ 2.159). Therefore the correct characterization is overvalued.

Conclusion: The sol may be overvalued, which matches the provided answer: overvalued.

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