oussama94
05-28-2017, 23:49
One of the most famous examples of PPP is the
Economist’s Big Mac Index. The Big Mac PPP is the exchange rate that
would leave hamburgers costing the same in the United States as elsewhere,
comparing these with actual rates signals if a currency is underor
overvalued. For example, in April 2002 the exchange rate between the
United States and Canada was 1.57. In the United States a Big Mac cost
$2.49. In Canada, a Big Mac cost $3.33 in local Canadian dollars (CAD),
which works out to only $2.12 in U.S. dollars. Therefore, the exchange rate
for USD/CAD is overvalued by 15 percent using this theory and should be
only 1.34.
Economist’s Big Mac Index. The Big Mac PPP is the exchange rate that
would leave hamburgers costing the same in the United States as elsewhere,
comparing these with actual rates signals if a currency is underor
overvalued. For example, in April 2002 the exchange rate between the
United States and Canada was 1.57. In the United States a Big Mac cost
$2.49. In Canada, a Big Mac cost $3.33 in local Canadian dollars (CAD),
which works out to only $2.12 in U.S. dollars. Therefore, the exchange rate
for USD/CAD is overvalued by 15 percent using this theory and should be
only 1.34.