 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
Big Mac PPP
A survey done by The Economist that determines
what a country's exchange rate would have to be for a
Big Mac in that country to cost the same as it does in
the United States. Purchase power parity (PPP) is a
theory that currencies adjust according to changes in
their purchasing power. With the Big Mac PPP,
purchasing power is reflected by the price of a
McDonald's Big Mac in that country. The measure
gives an impression of how overvalued or
undervalued a currency is.
The calculation of the Big Mac PPP-adjusted exchange
rate looks at the price of a Big Mac in a given country
and divides it by the price of a U.S. Big Mac. Say we
are looking at the Big Mac in China. If a Chinese Big
Mac is 10.41 yuan and the U.S. price is US$2.90, then -
according to PPP - the exchange rate should be 3.59
yuan for US$1. However, if the yuan were trading in
the currency market at 8.27 yuan for US$1, the Big Mac
PPP indicates that the yuan is undervalued.
A survey done by The Economist that determines
what a country's exchange rate would have to be for a
Big Mac in that country to cost the same as it does in
the United States. Purchase power parity (PPP) is a
theory that currencies adjust according to changes in
their purchasing power. With the Big Mac PPP,
purchasing power is reflected by the price of a
McDonald's Big Mac in that country. The measure
gives an impression of how overvalued or
undervalued a currency is.
The calculation of the Big Mac PPP-adjusted exchange
rate looks at the price of a Big Mac in a given country
and divides it by the price of a U.S. Big Mac. Say we
are looking at the Big Mac in China. If a Chinese Big
Mac is 10.41 yuan and the U.S. price is US$2.90, then -
according to PPP - the exchange rate should be 3.59
yuan for US$1. However, if the yuan were trading in
the currency market at 8.27 yuan for US$1, the Big Mac
PPP indicates that the yuan is undervalued.