Where Data Tells the Story
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The price of a McDonald's Big Mac in different countries around the world in U.S. dollars, using data from The Economist.
The Big Mac index, created by The Economist, compares the purchasing power parity (PPP) of currencies using the price of a Big Mac in the U.S. as the benchmark. It shows how much a Big Mac costs in various countries compared to the U.S., but it also works as an economic tool to assess exchange rates.
One can use the price of Big Mac's to see if a currency's exchange rate with the U.S. dollar is over or undervalued. This is done by taking the local price of a Big Mac (in local currency) and dividing it by the U.S. price of a Big Mac to calculate an implied exchange rate.
This implied exchange rate is then compared against the actual exchange rate between the two currencies; if the implied rate is higher than the actual rate, the local currency is overvalued, and if it is lower, the local currency is undervalued.