Understanding Exchange Rates and The Big Mac Index



The Big Mac index was introduced by Pam Woodall in The Economist in 1986. It is intended to be a less serious take on #purchasingpower parity that “seeks to make #exchangerate theory a bit more digestible.” Instead of using a basket of goods to determine exchange rate parity, only the McDonald’s Big Mac is used. Unlike a basket of goods, a Big Mac is identical from country to country. According to the Big Mac Index the US dollar is currently one of the most overvalued currencies. The Big Mac Index has moderate success at predicting exchange rate movements for developing and transition countries. However, it is pretty worthless when it comes to predicting exchange rate movements for industrial countries. #cfainstitute #currencyexchange #foreignmarkets #currencies #currencymarket

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Understanding Exchange Rates and The Big Mac Index

The Big Mac index was introduced by Pam Woodall in The Economist in 1986. It is intended to be a less serious take on #purchasingpower parity that "seeks to make #exchangerate theory a bit more digestible." Instead of using a basket of goods to determine exchange rate parity, only the McDonald's Big Mac is used. Unlike a basket of goods, a Big Mac is identical from country to country. According to the Big Mac Index the US dollar is currently one of the most overvalued currencies. The Big Mac Index has moderate success at predicting exchange rate movements for developing and transition countries. However, it is pretty worthless when it comes to predicting exchange rate movements for industrial countries. #cfainstitute #currencyexchange #foreignmarkets #currencies #currencymarket