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Lowest purchasing power parity

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Reference no: EM133151014

"The Economist's Big Mac index is based on one of the oldest concepts in international economics: the theory of purchasing-power parity (PPP), which argues that in the long run, exchange rates should move towards levels that would equalise the prices of an identical basket of goods and services in any two countries. Our "basket" is a McDonald's Big Mac, produced in around 120 countries. The Big Mac PPP is the exchange rate that would leave burgers costing the same in America as elsewhere...The index was never intended to be a precise predictor of currency movements, simply a take-away guide to whether currencies are at their "correct" long-run level. Curiously, however, burgernomics has an impressive record in predicting exchange rates: currencies that show up as overvalued often tend to weaken in later years. "

Discussion Question:

Identify the five countries (and their currencies) with the lowest purchasing power parity according to this classification.  Can you think of any reasons why those currencies should be so undervalued?

https://fxssi.com/big-mac-index

Reference no: EM133151014

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