International Financial Management

International Financial Management (U21081)

Course work 2013-14

THE Big Mac index was invented by The Economist in 1986 as a guide to whether currencies

are at their correct level. It is based on the theory of purchasing-power parity (PPP), the

notion that in the long run exchange rates should move towards the rate that would

equalise the prices of an identical basket of goods and services (in this case, a burger) in any

two countries.

Your assignment is to devise your own index. You need to choose a homogeneous product

that is available in at least 10 different countries in the world and construct an index using

the same columns as the example on page 208 of your text book.

Prices of goods in local currencies can be found using the internet. Please ensure that you

state the source of all prices used and the date retrieved.

You need to state the date that you convert local currencies to US Dollar prices (column 2 of

the index).

A spreadsheet should be used to construct the index.

Commentary:

You have a maximum of 1000 words to address the following:

1. Why is the product you chose is a good candidate for the application of the law of

one price?

2. Referring to column 5 of your index the under or over valuation of the currency

against the dollar, provide an explanation of the results for each currency.

3. What are the limitations of the law of one price?

The writing must be of a good standard and referenced according to Harvard APA.

Marking Scheme

Spreadsheet accuracy and presentation 50%

Commentary technical content 30%

Scholarship (Grammar, spelling etc.) 20%

Total 100%

Due Date

You should submit a hardcopy of your index and the commentary to Richmond Assessment

office no later than 24 th

February 2014.

Return of marked Coursework

Marked course work will be returned to the undergraduate office in line with the

University’s guidelines which is 20 working days (4 weeks).

Queries

If you have any questions regarding the coursework please refer them to your seminar

tutor.

Week 8 of semester 1 will be devoted to answering queries related to the coursework. In

order to get the most out of that session please ensure that you have made a start on your

course work by this date.

Annette Gillies Sept 2013