Last Updated on Saturday, 16 October 2010 01:54 Written by admin Friday, 15 October 2010 01:46
Why China Needs More Expensive Burgers
A WEAK currency, despite its appeal to exporters and politicians, is no free lunch. But it can provide a cheap one. In China a McDonald’s Big Mac costs just 14.5 yuan on average in Beijing and Shenzhen, the equivalent of $2.18 at market exchange rates. In America the same burger averages $3.71. That makes China’s yuan one of the most undervalued currencies in our Big Mac index, which is based on the idea of purchasing-power parity. This says that a currency’s price should reflect the amount of goods and services …
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Learn MoreLast Updated on Wednesday, 7 April 2010 12:22 Written by admin Wednesday, 17 March 2010 05:37
Chinese Yuan in the Big Mac Index
| Big Mac | Big Mac | Actual | Implied PPP | Valuation relative | |
| Local | Dollars | Exchange Rate | of the $ | to the $ | |
| 1992 | 6.3 | 1.16 | 5.44 | 2.88 | -89% |
| 1993 | 8.5 | 1.50 | 5.68 | 3.73 | -34% |
| 1994 | 9.0 | 1.03 | 8.70 | 3.91 | -55% |
| 1995 | 9.0 | 1.05 | 8.54 | 3.88 | -55% |
| 1996 | 9.6 | 1.15 | 8.35 | 4.07 | -51% |
| 1997 | 9.7 | 1.16 | 8.33 | 4.01 | -52% |
| 1998 | 9.9 | 1.20 | 8.28 | 3.87 | -53% |
| 1999 | 9.9 | 1.20 | 8.28 | 4.07 | -51% |
| 2000 | 9.9 | 1.20 | 8.28 | 3.94 | -52% |
| 2001 | 9.9 | 1.20 | 8.28 | 3.90 | -53% |
| 2002 | 10.5 | 1.27 | 8.28 | 4.22 | -49% |
| 2003 | 9.9 | 1.20 | 8.28 | 3.65 | -56% |
| 2004 | 10.4 | 1.26 | 8.34 | 3.59 | -57% |
| 2005 | 10.5 | 1.27 | 8.37 | 3.43 | -59% |
| 2006 | 10.5 | 1.31 | 8.03 | 3.39 | -58% |
| 2007 | 11.0 | 1.45 | 7.60 | 3.23 | -58% |
| 2008 | 12.5 | 1.83 | 6.83 | 3.50 | -49% |
| 2009 | 12.5 | 1.83 | 6.83 | 3.50 | -49% |
| 2010 | . | 1.83 | . | . | -49% |
Current Value of the Chinese Yuan
Chinese Yuan Renminbi Exchange RateChinese Yuan ETFs
WisdomTree Dreyfus Chinese Yuan Fund (CYB)
WisdomTree Dreyfus Chinese Yuan Fund seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar.
Learn MoreLast Updated on Saturday, 13 February 2010 08:40 Written by admin Wednesday, 10 February 2010 09:14
The following article is from Seeking Alpha. In short, they are tracking ETFs that mirror currencies represented in the Big Mac Index. The theory is that if you buy currencies that are undervalued according to the Big Mac Index, and short currencies that are overvalued, you will make money when the value of the currencies converge which they tend to do. Of course, you can profit this way either using ETFs which track currencies or by buying and selling the currencies themselves on the foreign exchange market.
From Seeking Alpha …
Although the validity of the Big Mac index in determining the value of currencies in the real world is suspect, it is still an intriguing idea nonetheless. The Economist’s Big Mac Index is based on the theory of purchasing-power parity (PPP). Exchange rates should equalize the price of a basket of goods in different countries.
The index shows which countries’ currencies are under and overvalued. The most overvalued currency according to the index is the Norwegian Kroner, which is almost 100% above its PPP rate. The most undervalued currency according to the index is the Chinese Yuan, unvervalued by almost 50%.
We thought it would be interesting to take track the performace on the Big Mac Index by through currency ETFs (see here). Unfortunately, there are not ETFs for all of the currencies on this list, but we chose the following:
LONG undervalued BIG MAC currencies:
CNY: Market Vectors Chinese Renminbi USD ETNs
XRU: Currency Shares Russian Ruble Trust
SZR: WisdomTree Dreyfus South African Rand Fund
FXM: Rydex Mexican Peso Trust
SHORT overvalued BIG MAC currencies:
FXF: Rydex Swiss Franc Trust
EUO: ProShares UltraShort Euro (long this index)
FXA: Rydex Australian Dollar Trust
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