Big Mac Index

The Big Mac Index measures the relative purchasing power of two currencies (also called their “purchasing power parity”). The index works by comparing the cost of a McDonald’s Big Mac in two different currencies. Because a Big Mac is a standardized product, comparing its cost in two currencies should predict the exchange rate between the two currencies.

If the exchange rate predicted by comparing the cost of Big Macs does not match the actual exchange rate, then one of the currencies involved is either undervalued or overvalued. This light-hearted financial index was invented by the world affairs publication The Economist in 1986 and continues to be issued by that publication