Assume the implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50 according to the Big Mac Index. Further, assume the current exchange rate is Peso 10.80/$1. Thus, according to PPP and the Law of One Price, at the current exchange rate the peso is:

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The peso is undervalued because the current exchange rate (10.80/$1) is higher than the PPP implied rate (8.50/$1), suggesting it costs more pesos to buy a dollar than it should according to PPP.

Assume the Implied PPP Rate of Exchange of Mexican Pesos