Last Updated on Sunday, 21 February 2010 12:25 Written by admin Sunday, 21 February 2010 12:25

For those of you interested in using the Big Mac Index for profit by either buying ETFs that track undervalued currencies or trading in foreign exchange directly, don’t forget about the differences between the short and long run. While PPP will eventually work, it may take years for undervalued currencies to gain value and for overvalued currencies to lost value. Government policies can serve to keep a currency undervalued for decades. That said, trading currency based on the Big Mac Index may be directionally right (under or overvalued), you may not be around long enough to actually see any of the gains.

On the flip side of the coin, if the Big Mac Index verifies other data that is indicating an over or undervaluation of currency, that would probably be a better situation to be involved in. Use it as “a” factor and not “the” factor.