Which Currency is OverValued or UnderValued vs. US Dollar? How Far from Fair Value is Your Currency?

27-Sep-2010

I like this.

By

A banker turned social finance entrepreneur. Liu-Yue built and managed two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a social financial education website that helps facilitate the exchange of ideas on emerging alternative investment opportunities along the new Silk Road (emerging markets). Liu-Yue also co-founded Cute Brands, Inc. – Cute and Happy with a Cause! Cute Brands is a cause-oriented, character-based brand licensing and social impact fund that creates social awareness on global issues and societal challenges through character creations, and also supports select charities (WWF, WCS, and ASPCA) through consumerism. A NYC native, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group. Prior to M&T, he held a number of positions in emerging markets bonds and Latin American equities at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities and special situation investing at Steinberg Priest Capital Management (family office). Liu-Yue has a Bachelor of Science in Finance and Marketing from the Stern School of Business at NYU, and an MBA specializing in investment management and strategy from Georgetown University. He also completed graduate studies in international management at the University of Oxford, Trinity College.







Big Mac Index

The Economist’s Big Mac Index 7/22/10 Big Mac Prices valued at today’s exchange rates
Country Big Mac Price Implied PPP rate + Today’s
Exchange Rate
1 USD =
Over(+) / Under(-) Valuation against the USD, % ++
in Local Currency in US dollars
United States $ 3.73 3.7300 1.0000
Argentina Peso 14 3.4960 3.75 4.0046 -6.3577
Australia A$ 4.35 4.0711 1.17 1.0685 9.4993
Brazil Real 8.71 4.9610 2.33 1.7557 32.7106
Britain £ 2.29 3.5787 0.61 0.6399 -4.6726
Canada C$ 4.17 4.0341 1.12 1.0337 8.3487
Chile Peso 1750 3.4364 469 509.250 -7.9038
China Yuan 13.2 1.9594 3.54 6.7369 -47.4536
Colombia Peso 8200 4.4167 2196 1856.60 18.2807
Costa Rica Colones 2000 3.8977 536 513.120 4.4590
Czech Republic Koruna 67.6 3.5688 18.1 18.9417 -4.4436
Denmark DK 28.5 4.9900 7.63 5.7114 33.5925
Eygpt Pound 13 2.2249 3.48 5.8429 -40.4405
Estonia Kroon 32 2.6161 8.57 12.2320 -29.9379
Euro area € 3.38 4.4097 0.91 0.7665 18.7215
Hong Kong HK$ 14.8 1.9055 3.96 7.7670 -49.0151
Hungary Forint 740 3.4143 198 216.738 -8.6455
Indonesia Rupiah 22780 2.5058 6102 9090.91 -32.8780
Israel Shekel 14.9 3.9924 3.99 3.7321 6.9103
Japan ¥ 320 3.7251 85.7 85.9031 -0.2364
Latvia Lats 1.55 2.8115 0.42 0.5513 -23.8164
Lithuania Litas 7.3 2.7169 1.96 2.6869 -27.0535
Malaysia Ringgit 7.05 2.2339 1.89 3.1559 -40.1122
Mexico Peso 32 2.4966 8.57 12.8173 -33.1372
New Zealand NZ$ 5 3.6261 1.34 1.3789 -2.8211
Norway Kroner 45 7.3490 12.1 6.1233 97.6059
Pakistan Rupee 210 2.4064 56.30 87.2660 -35.4846
Peru New Sol 10 3.4944 2.68 2.8617 -6.3494
Philippines Peso 102 2.2978 27.3 44.3900 -38.4997
Poland Zloty 8.3 2.7182 2.22 3.0535 -27.2965
Russia Rouble 71 2.2313 19.0 31.8200 -40.2891
Saudi Arabia Riyal 10 2.6592 2.68 3.7605 -28.7329
Singapore S$ 4.23 3.1652 1.13 1.3364 -15.4445
South Africa Rand 18.5 2.5720 4.94 7.1929 -31.3212
South Korea Won 3400 2.8788 911 1181.06 -22.8659
Sri Lanka Rupee 210 1.8165 56.3 115.610 -51.3018
Sweden SKr 48.4 6.8400 13.0 7.0760 83.7196
Switzerland SFr 6.5 6.4331 1.74 1.0104 72.2090
Taiwan NT$ 75 2.3632 20.1 31.7370 -36.6670
Thailand Baht 70 2.2403 18.8 31.2459 -39.8321
Turkey Lire 5.95 3.9672 1.59 1.4998 6.0141
UAE Dirhams 11 2.9940 2.95 3.6740 -19.7060
Ukraine Hryvnia 14.5 1.7979 3.88 8.0650 -51.8909
Uruguay Peso 79 3.7356 21.1 21.1480 -0.2270

+ The Purchasing Power Parity (PPP) rate is the local Big Mac price divided by its price in the United States. Prices and their corresponding implied PPP rates are the latest figures available from The Economist.

What is the Big Mac Index?

The Economist uses the price of the ubiquitous McDonald’s meal to calculate the “Big Mac Index”, a guide showing how far from fair value different world currencies are. The Big Mac theory (a.k.a. purchasing-power parity, or PPP) says that exchange rates should even out the prices of Big Macs sold across the world.

The implied PPP shown in the table is the exchange rate that would make a Big Mac cost the same abroad as it does in the USA. When you compare actual exchange rates with the implied PPP rate, you will see that most currencies are trading way above or below the US dollar, meaning that they are over- or undervalued. Keep in mind that PPP is a long-term indicator, pointing to where currencies ought to go in the future. (It’s also best to use it only to measure currencies between countries that are at a similar stage of development.)

Tags: , , ,

2 Comments

  1. ATSiem added these insightful words on September 22, 2010 | Permalink

    I remember a friend who visited Reykjavik, Iceland in 2007 spent $27USD on lunch at McDonald’s.

    And I was traveling in Jelenia Gora, Poland in 1996, when the first McDonald’s came to town. There was a line of 100 people out the door and down the street everyday for several months. Not sure of the prices back then… would be interesting to find.

    Like or Dislike: Thumb up 1 Thumb down 0

  2. Aidualc added these insightful words on September 23, 2010 | Permalink

    Wow expensive lunch that was!! In Romania is much more cheaper around 5-8 $/lunch. I estimate because I dont go often – i’m not such a fan of fast food, but I think that’s roughly the correct price!

    They entered our market in 1995… and I must say that among teens and kids is pretty popular place to hang out and eat.

    Like or Dislike: Thumb up 0 Thumb down 0

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Subscribe without commenting





Loading...
Join Oxstones Investment Club's Daily Newsletter