Bigmac index

Bigmac index is a procedure popularized by the economist magazine where it compares prices of Mc donald's Bigmacs in each country. This is their way to publish the PPP (purchasing power parity) difference in each country to the general public and also determines the region's currency whether it is overvalued or undervalued. This index uses current exchange rates for comparison.

For example, The exchange rate between the US and the Japanese Yen is $1 = 82 Yen and the Bigmac costs 200 Yen in Japan and $2.30 in the US. Then, in the forex market 200 Yen = $2.42 that means the Bigmac in Japan is a lot more expensive than in the U.S which translates into the Yen being overvalued as a currency relative to the US dollar.

Stocks | Forex | Options | Economics | Bonds | History | Language learning | Technology | Technical Analysis | Fundamental Analysis
Copyright © 2014 econtrader | Risk disclosure | Terms of Use