The Big Mac Index (BMI) is
essentially an exchange rate for Big Macs.
It demonstrates the Big Mac
purchasing power of your currency, compared to another
When you compare this Big
Mac Rate to the currency exchange rate,
you can determine if your
currency is under or overvalued.
We can also suggest which
direction a currency may move in the future.
Big Macs are used as the basic
denominator, because everybody knows how to sink their
teeth into them.
Using the BMI we can study how
effectively exchange rates equalise the price of Big
Macs around the world.
We assume that Big Macs are
identical across the world, and everybody pays a fair
price in their own currency for them.
We would expect that no
matter where you devoured your Big Mac, the currency
exchange rate should equalise the price.
Any price variations
between countries would suggest a relative under or
overvaluation of a currency.
These are very broad assumptions,
but necessary if we are to use the BMI as a global