Tarot cards, crystal balls, palm reading and…the Big Mac? According to The Economist, the Big Mac, too, can be used to predict the future; in fact, the Big Mac might just be the most scientific predictor of any of this list.
The Big Mac Index
Since 1986, The Economist has used its now famous “Big Mac index” to illustrate the theory of purchasing-power parity (PPP), or the concept that global exchange rates should move toward a rate that would make the prices of identical goods and services identical in any two countries. For example, if a Big Mac is selling for $4.80 (as of July 2014) in the United States but only $3.64 in Japan (after exchanged for 370 Japanese Yen), assuming the Big Mac has the same real value everywhere, it suggests the Yen is 24 percent undervalued compared to the U.S. dollar and will eventually increase in value.
Now, this isn’t to say that you should start investing using the Big Mac index. The index assumes Big Macs have the same intrinsic value, which simply isn’t true. Everything from worker wages to local demand for beef can skew a country’s burger prices. The index just provides an interesting (and savory) take on global currency rates.
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This article was written by Advicent Solutions, an entity unrelated to Fingerlakes Wealth Management. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Fingerlakes Wealth Management does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. ©2013 Advicent Solutions. All rights reserved.