Web Trader MT5
An informal measure of purchasing power parity published by The Economist since 1986. The idea is simple: a Big Mac is roughly the same product everywhere it’s sold, so comparing its local price across countries gives you a rough sense of whether currencies are overvalued or undervalued against each other.
If a Big Mac costs $5.50 in the US and the equivalent of $4.00 in Tokyo at current exchange rates, the yen looks undervalued. The index is a teaching tool more than a serious forecasting model. Real PPP comparisons need to control for non-tradeable inputs like wages, rent, and local taxes, which a Big Mac includes implicitly. Still, the index is useful precisely because it’s intuitive; it makes the abstract concept of PPP graspable to anyone who has ever bought a burger.
Example: The January 2024 Big Mac Index showed the Indian rupee as one of the world’s most undervalued currencies on PPP grounds, with a Maharaja Mac (the local equivalent) costing the dollar equivalent of roughly $2.40 versus over $5.50 in the US.
