China big mac index 2012

Nevertheless, using the Big Mac index in this way does give a useful preliminary snap shot of differences in what minimum wages can buy in different countries. Earnings Database Eurostat. Why may actual exchange rates not accurately reflect the purchasing power of currencies within countries? Using the link to Eurostat article above, compare Big Mac minimum wages with a actual minimum wages and b minimum wages expressed in purchasing-power standard terms.

Using the links to the Eurostat article and Eurostat data, describe how the proportion of employees earning minimum wages varies across European countries.

The Big Mac Index Video

What factors determine this proportion? Using the same links, describe how the monthly minimum wage as a proportion of average monthly earnings varies across European countries.

McDonald's as a Purchasing Power Parity Index

Explain these differences. The USA has complained for a long time now that the Chinese currency is undervalued. This makes it hard for American domestic firms to compete with cheap Chinese imports and for US exporters to sell to China. This was a major talking point at the G20 conference in Korea in November see Seoul traders and the following clip from Reuters: Obama pressures China at G So is the yuan undervalued and, if so, has there been any appreciation to reduce the degree of undervaluation?


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In July the peg was relaxed and the yuan has appreciated. In real terms the appreciation has been greater. Chinese inflation is above US inflation.

Global exchange rates, to go

Latest figures for Chinese inflation show consumer prices rising by an annual rate of 5. This compares with 1. This makes the real appreciation greater. In theory, the price of a Big Mac reflects a number of local economic factors, ranging from the cost of the ingredients to the cost of local production and advertising.


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  • The resulting PPP metric is, therefore considered by many economists to be a reasonable measurement of real-world purchasing power. But investors should remember that there are some important exceptions to the rule. The Big Mac Index is calculated by dividing the price of a Big Mac in one country by the price of a Big Mac in another country in their respective local currencies to arrive at an exchange rate. This exchange rate is then compared to the official exchange rate between the two currencies to determine if either currency is undervalued or overvalued according to the PPP theory.

    For example, suppose that a Big Mac in the U. There are also many variants of the Big Mac Index that may be useful for investors. Other groups created separate indexes for everything from Apple iPods to Starbucks coffees to Ikea Billy bookshelves.

    2012 Big Mac Index

    But, some economists believe that certain goods could provide a more accurate indicator since the CPI can be skewed by certain categories or manipulated by some governments. By any measure, the Turkish Lira is very undervalued. The Big Mac Index shows Turkey at record-lows both relative to its history and compared to other countries. For an investor in Turkish assets, the very cheap lira should provide a strong boost to total dollar returns when the economy recovers over Russia provides an interesting contrast to Turkey.

    • Big Mac index worldwide | Statista

    Though the Russia Big Mac is very cheap, it is only marginally cheaper than it has been for the past 20 years both relative to the USD and to other countries. This points to relatively poor upside for the ruble, unless, of course, oil prices rally strongly. India shows a significant relative appreciation in the Big Mac data for the past ten years, and its Big Mac has been increasing in price relative to other countries. The rupee is likely to trade increasingly in line with oil prices as the country has become the biggest importer of oil in the world.

    Currency strength is not likely to be a boost to investor performance from current levels, unless oil prices collapse.