Big Mac Index http://bigmacindex.org Understanding and profiting from the Big Mac Index Tue, 20 Apr 2010 02:31:40 +0000 en hourly 1 http://wordpress.org/?v=3.0.1
Big Mac Index Update Video http://bigmacindex.org/videos/big-mac-index-update-video.htm http://bigmacindex.org/videos/big-mac-index-update-video.htm#comments Mon, 19 Apr 2010 22:58:07 +0000 admin http://bigmacindex.org/?p=515 An update on how a digestible burger index reveals how currencies across the globe is faring, with Stephen Gallo, Schneider Foreign Exchange head of market analysis.

]]> http://bigmacindex.org/videos/big-mac-index-update-video.htm/feed 0 Basket of Goods http://bigmacindex.org/basics/basket-of-goods.htm http://bigmacindex.org/basics/basket-of-goods.htm#comments Wed, 07 Apr 2010 19:43:41 +0000 admin http://bigmacindex.org/?p=437 A relatively fixed set of consumer products and services valued and used on an annual basis to track inflation in a specific market or country. The goods in the basket are often adjusted periodically to account for changes in consumer habits  The basket of goods is used primarily to calculate the Consumer Price Index (CPI).

]]> http://bigmacindex.org/basics/basket-of-goods.htm/feed 0 Purchasing Power Parity http://bigmacindex.org/basics/purchasing-power-parity.htm http://bigmacindex.org/basics/purchasing-power-parity.htm#comments Wed, 07 Apr 2010 19:42:18 +0000 admin http://bigmacindex.org/?p=435
read more..]]> Purchasing power parity (PPP) is a theory of long-term equilibrium exchange rates based on relative price levels of two countries. The idea originated with the School of Salamanca in the 16th century [1] and was developed in its modern form by Gustav Cassel in 1918.[2] The concept is founded on the law of one price; the idea that in absence of transaction costs, identical goods will have the same price in different markets.

]]> http://bigmacindex.org/basics/purchasing-power-parity.htm/feed 1 Argentinian Peso http://bigmacindex.org/currency/argentinian-peso.htm http://bigmacindex.org/currency/argentinian-peso.htm#comments Wed, 07 Apr 2010 19:39:59 +0000 admin http://bigmacindex.org/?p=432 Argentinian Peso and the Big Mac Index

Argentinian Peso ETFs

Current Value of the Argentinian Peso

]]> http://bigmacindex.org/currency/argentinian-peso.htm/feed 1 Brazilian Real http://bigmacindex.org/currency/brazilian-real.htm http://bigmacindex.org/currency/brazilian-real.htm#comments Wed, 07 Apr 2010 19:37:38 +0000 admin http://bigmacindex.org/?p=429 Big Mac Index and the Brazilian Real

Current Value of the Brazilian Real

Brazilian Real ETFs

]]> http://bigmacindex.org/currency/brazilian-real.htm/feed 1 Valuation Relative to the Dollar http://bigmacindex.org/basics/valuation-relative-to-the-dollar.htm http://bigmacindex.org/basics/valuation-relative-to-the-dollar.htm#comments Wed, 07 Apr 2010 17:37:58 +0000 admin http://bigmacindex.org/?p=414 http://bigmacindex.org/basics/valuation-relative-to-the-dollar.htm/feed 0 Implied PPP of the Dollar http://bigmacindex.org/basics/implied-ppp-of-the-dollar.htm http://bigmacindex.org/basics/implied-ppp-of-the-dollar.htm#comments Wed, 07 Apr 2010 17:23:35 +0000 admin http://bigmacindex.org/?p=411
read more..]]> Implied PPP of the Dollar  =  Big Mac Price in Local Currency / Big Mac Price in Dollars

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You can think of implied PPP like this.  If a Big Mac costs 11.5 Pesos in Argentina and the same Big Mac costs $3.57 in the United States, then according to Purchasing Power Parity (and using the Big Mac as a typical basket of goods) 11.5 Pesos should equal $3.57.  If 11.5 Argentinian Pesos did in fact equal $3.57 then the exchange rate would be 11.5 / 3.57 = 3.22 Pesos per dollar.  So in this case, the Implied PPP of the Dollar is 3.22 Argentinian Pesos.

Likewise, in Brazil a Big Mac costs 8.03 Brazilian Reals and again in the United States it costs $3.57, then the Implied PPP of the Dollar would be 8.03 / 3.57 = 2.25 Reals per Dollar.  Since you can actually buy 2 Reals per dollar (according to this Big Mac Index report) this implies that the currency is overvalued by 13%.  Click here for more information of the relative over or undervaluation of currencies as used in the Big Mac Index.

Please post any questions you have as a comment to this post.  Thanks.

]]> http://bigmacindex.org/basics/implied-ppp-of-the-dollar.htm/feed 0 Currency ETFs http://bigmacindex.org/currency/currency-etfs.htm http://bigmacindex.org/currency/currency-etfs.htm#comments Wed, 07 Apr 2010 14:09:38 +0000 admin http://bigmacindex.org/?p=405 Currency ETF spreadsheet coming soon …

]]> http://bigmacindex.org/currency/currency-etfs.htm/feed 0 Using the Big Mac Index to calculate real income http://bigmacindex.org/basics/using-the-big-mac-index-to-calculate-real-income.htm http://bigmacindex.org/basics/using-the-big-mac-index-to-calculate-real-income.htm#comments Tue, 30 Mar 2010 02:42:42 +0000 admin http://bigmacindex.org/?p=333
read more..]]> Besides being an excellent investing tool, the Big Mac Index can be used to calculate changes in real income.  In Big Mac terms, real income is basically the amount of Big Macs you can buy.  You can also think of real income as purchasing power.

Real Income = Nominal Income / Price Level

Since Price Level is related to inflation, you can think of real income as “the income of nations or individuals after adjusting for inflation”.  Business Insider did a story about the purchasing power of $100,000 in 20 cities worldwide.  The thing is though, they used the price of a Big Mac as the price level (or cost of living) in their calculations.  For calculations relating to price levels or costs of living, a “basket of goods” is usually used.  This time though, it’s the good old Big Mac Index.  Here are the results …

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In Zurich, $100,000 will get you …

a one bedroom, 39 sq. m. modern,

open floorplan apartment for

approximately USD 271,000.
Adjusted post-tax income Estimated Tax Compared cost of living
41,000 30% 172%

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In Berlin, $100,000 will get you …

a centrally-located, one bedroom,

one bath apartment with 70sq.m.,

for approximately USD 313,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$42,000 46% 129%

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In Tel Aviv, $100,000 will get you …

a 50sq.m. two room

apartment for approximately

USD 299,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$51,000 43% 112%

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In Sydney, $100,000 will get you …

a stylish studio in an affluent

inner-city suburb for

USD 302,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$54,000 40% 111%

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In Paris, $100,000 will get you …

a 24sq.m. studio in Paris’

3rd arrondissement for

approximately USD 293,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$55,000 39% 129%

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In Toronto, $100,000 will get you …

a three bedroom, three bath

home on less than half an acre

of land in a Toronto suburb for

approximately USD 299,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$55,000 38% 113%

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In Sao Paulo, $100,000 will get you …

a 720 sq.m. fully furnished,

five bedroom beach house two

hours drive from Sao Paulo, for

USD 320,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$60,000 26% 124%

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In San Fransisco, $100,000 will get you …

a one bedroom San Fransisco

home for USD 302,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$62,000 38% 100%

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In Istanbul, $100,000 will get you …

a 200 sq.m. villa located 3

miles from the city center,

for approximately USD 300,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$64,000 33% 104%

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In Boston, $100,000 will get you …

a two bedroom, one bath

900 sq.ft. co-op on Commonwealth

Ave. for USD 305,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$67,000 33% 100%

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In London, $100,000 will get you …

a centrally-located 270 sq.ft.

studio apartment for

approximately USD 300,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$68,000 34% 97%

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In New York, $100,000 will get you …

an Upper West Side studio

apartment for USD 284,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$72,000 38% 100%

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In Tokyo, $100,000 will get you …

a one bedroom in

Tokyo for USD 300,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$75,000 26% 99%

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In Capetown, $100,000 will get you …

a two bedroom, two bath

modern apartment with a view,

for approximately USD 245,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$96,000 35% 68%

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In Mexico City, $100,000 will get you …

a 168 sq.m. apartment

in a new construction for

approximately USD 301,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$100,000 28% 72%

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In Dubai, $100,000 will get you …

a two bedroom 1,153 sq.ft.

apartment in the Emirates Living

District for approximately USD 294,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$113,000 5% 84%

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In Moscow, $100,000 will get you …

a newly renovated and

fully furnished 30 sq.m.

studio for USD 290,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$115,000 13% 67%

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In Bangkok, $100,000 will get you …

a two bedroom, two bath brand

new centrally located68 sq.m. condo

for approximately USD 298,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$120,000 28% 60%

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In Shanghai, $100,000 will get you …

a one bedroom, one bath

centrally located apartment for

approximately USD 285,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$139,000 29% 51%

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In Hong Kong, $100,000 will get you …

a two bedroom on the

outskirts of Hong Kong for

approximately 296,000.
Adjusted post-tax income Estimated Tax Compared cost of living
$175,000 16% 48%



]]> http://bigmacindex.org/basics/using-the-big-mac-index-to-calculate-real-income.htm/feed 0 Swiss Franc Currency Report http://bigmacindex.org/currency/swiss-franc.htm http://bigmacindex.org/currency/swiss-franc.htm#comments Fri, 26 Mar 2010 02:25:10 +0000 admin http://bigmacindex.org/?p=316
read more..]]> Swiss Franc ETFs

You can simplify your currency trading by investing in the Swiss Franc using Exchange Traded Funds (ETFs).  The symbol for the Swiss Franc ETF is FXF.  The name for this ETF is the CurrencyShares Swiss Franc Trust. If the Swiss Franc is undervalued according to the Big Mac Index, buy FXF taking into account the Big Mac Index investing time-frame issue.  Here is the description of FXF:

The CurrencyShares Swiss Franc Trust is designed to track the price of the Swiss Franc net of the Trust’s expenses, which are expected to be paid from the interest earned on the deposited Swiss Francs.

Swiss Franc ETF = FXF

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If you think the Swiss Franc will appreciate against the dollar specifically you could invest in the SZE.  This is a description of the purpose of SZE:

The ELEMENTS U.S. Dollar/Swiss Franc Exchange Rate ETN is designed for investors who anticipate that the Swiss franc will appreciate against the U.S. dollar. The fund tracks the performance of the U.S. Dollar/Swiss Franc exchange rate plus the returns received on overnight deposits in Swiss Francs.

Swiss Franc vs. Dollar ETF = SZE

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