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 the 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 a particular country. The measure gives an impression of how overvalued or undervalued a currency is. Investopedia Says:
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. Let's say that we are looking at the Big Mac in China. If a Chinese Big Mac is 10.41 yuan and the U.S. price is $2.90, then - according to PPP - the exchange rate should be 3.59 yuan for US$1. However, if the yuan was actually trading in the currency market at 8.27 yuan for US$1, the Big Mac PPP would indicate that the yuan is undervalued. Related Terms:
Currency
Exchange Rate
Fixed Exchange Rate
Floating Exchange Rate
Purchasing Power
Purchasing Power Parity - PPP
Purchasing Power Parity - PPP
Relative Purchase Power Parity |