You are given the following information. The current Mexican peso- dollar exchange rate is Epeso/$ = 6.5 (P6.5 = 1$) while the price index in Mexico is 600 and the price index in the US is 100. (a)...

Extracted text: You are given the following information. The current Mexican peso- dollar exchange rate is Epeso/$ = 6.5 (P6.5 = 1$) while the price index in Mexico is 600 and the price index in the US is 100. (a) Based on this information, calculate the PPP predicted (implied) rate of exchange between the peso and the dollar? (E defined as (PESO/$). (b) Is the peso overvalued/undervalued based on your answer to part (a)? If so, by how much (%)? Explain. What is the currency overshooting hypothesis and what is behind it?