Global Finance (6): Big Mac Index

Question 1

What does the Big Mac Index do?

Answer 1

Measure PPP (see if a currency is over or undervalued to US dollar)

Question 2

What are some limitations of the index?

Answer 2

Actual currency is influenced by inflation, politics, and investors, not just PPP.

Question 3

What countries are accurate with BMI? Which are not?

Answer 3

Ukraine and India not accurate. Swiss Franc more accurate.

Question 4

What are some positives about the BMI?

Answer 4

It’s bad for short-term speculation but helps for long-term trends on PPP.

Question 5

Explain why buying the Ukranian Hryvnia in 2015 based on the BMI would be a poor choice.

Answer 5

In 2015, the Hryvnia was expected to rise in value based on the low Big Mac price, but investor confidence and inflation affected it more than PPP.

Question 6

Explain why the BMI was a poor measure for India from 2013-2015?

Answer 6

The price of a Big Mac rose 13% yet the rupee fell in value because of other factors.