Index Big Mac

The famous hamburger Big Mac has generated an impact in the currency market in the form of the index Big Mac. We explore this phenomenon Big Mac.

The Big Mac index is based on the price of the hamburger “Big Mac” that is sold anywhere in the world in the chain of McDonalds restaurants. This index Big Mac was introduced by the magazine “The Economist” in September of 1986 as an informal form to compare the parity of the spending power (PPA) between different currencies by means of the PPA Big Mac. The humble hamburger Big Mac is ideal for this intention since the McDonalds restaurants are available in approximately 120 countries around the world and the Big Mac Burger for this reason is considered like a basic product available or Currency.

The PPA Big Mac is quite important. The index predicts that the currencies Big Mac would have to be compensated according to the rate of change of the respective countries. The index Big Mac predicts the rate of change between two currencies on the base of the price of a Big simple Mac in those countries. The premises of the tax exemptions of McDonalds have a great responsibility to regulate the price of their hamburgers Big Mac to maintain a constant PPA at global level and this adds exactitude of the index.

The rate of change of the PPA Big Mac is determined when dividing the price of a Big simple Mac in a country (in its own currency) by the price of a Big Mac in a second country (in its own currency also). This number is compared with the rate of present change. If the result is smaller, then the currency of the first country is evaluated. If the result is greater, then the currency of the first country is sober estimated against the currency of the second country.

Using numbers of the index Big Mac in July of 2008 we can deduce the following thing: The price of a Big Mac in the United Kingdom was of £2,29 and the price in EE.UU was of $3,57. This gave like result that the parity of the spending power Big Mac was of $3,57/£2,29 = 1,56. The type of real par in that then went of $2.00 to £1. The result indicated that the pound sterling was sober estimated by 28% on the dollar.

Disadvantages of the PPA Big Mac:

The exactitude of the index Big Mac is affected by factors such as cultural differences, local taxes, levels of competition and local rights of import of the respective countries. The demand of the hamburgers Big Mac is also different in each country. Nevertheless, the index Big Mac has demonstrated to be between the economists a valuable tool to measure the parity of world-wide the spending power.

Variants of the currencies Big Mac:

The idea of the index Big Mac has been adapted and expanded by a number different from institutions from the arrival of the currencies in 1986.

A variant by the investment bank UBS AB has expanded the index to include the working time that needs a working average in a specific country to allow him to buy a hamburger Big simple Mac. This model is called the index Big Mac based on the working time. This index provides one more a more real sensation real the spending power between the countries since it includes factors such as local pays and wages.

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