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Big Mac Index: Currency Insights

The document summarizes the Big Mac Index, which uses the price of a McDonald's Big Mac burger in different countries to estimate if currencies are over or undervalued based on purchasing power parity (PPP). It was created by The Economist in 1986. The index compares the local price of a Big Mac in US dollars to the actual exchange rate, with a lower implied exchange rate indicating an undervalued currency. For example, a Big Mac costs 13 Qatari riyals versus $5.81 in the US, implying an exchange rate of 2.24 riyals to the dollar compared to the actual 3.64, suggesting the Qatari riyal is 38.5% undervalued.

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Anthony Stark
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67 views3 pages

Big Mac Index: Currency Insights

The document summarizes the Big Mac Index, which uses the price of a McDonald's Big Mac burger in different countries to estimate if currencies are over or undervalued based on purchasing power parity (PPP). It was created by The Economist in 1986. The index compares the local price of a Big Mac in US dollars to the actual exchange rate, with a lower implied exchange rate indicating an undervalued currency. For example, a Big Mac costs 13 Qatari riyals versus $5.81 in the US, implying an exchange rate of 2.24 riyals to the dollar compared to the actual 3.64, suggesting the Qatari riyal is 38.5% undervalued.

Uploaded by

Anthony Stark
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

The Big Mac Index -

PPP
Group 6 Members

Abhishek Jais - 20-S-046


Aniket Lele - 20-S-063
Prasad Nagare - 20-S-080
Kapil Patil - 20-S-093
Yashrajsingh Rajput - 20-S-108
Introduction

• The Big Mac index was introduced in The Economist in September 1986 by Pam Woodall
as a semi-humorous illustration of PPP
• In the Big Mac Index, the basket in question is a single Big Mac burger as sold by the
McDonald's fast food restaurant chain
• The Big Mac was chosen because it is available to a common specification in many
countries around the world
• For these reasons, the index enables a comparison between many countries' currencies.
• The Big Mac PPP exchange rate between two countries is obtained by dividing the price of
a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in
its currency).
• This value is then compared with the actual exchange rate; if it is lower, then the first
currency is under-valued (according to PPP theory) compared with the second, and
conversely, if it is higher, then the first currency is over-valued.

Big Mac Index of Qatar


• A Big Mac costs 13 riyals in Qatar and US$5.81 in the United States
• The implied exchange rate is 2.24. ---The difference between this and the actual exchange
rate, 3.64, suggests the Qatari riyal is 38.5% undervalued

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