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Thread: Rates of Exchange

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    Silver Member Graeme's Avatar
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    Rates of Exchange

    In looking at what the economists call “Purchasing Power Parity” it is a bit of fun to look at how much an American would have to pay for a Big Mac hamburger in various parts of the world. The Big Mac is useful for making these comparisons because it is made to a rigorous specification - you get precisely the same thing whether you buy it in New York, Moscow or Durban.

    The average (New York, Chicago, Atlanta and San Francisco) price of a Big Mac in the USA is $3,57. But an American buying a Big Mac in other countries and paying for it in their currencies would have to pay a wide range of US Dollar equivalents:

    Closest to the USA are Australia ($3,36) and New Zealand ($3,72). After that it gets weird - Hong Kong ($1,71), Malaysia ($1,70), Norway ($7,88), Euro Area ($5,34), South Africa ($2,24), Russia ($2,54) and China ($1,83).

    This shows that when it comes to the Purchasing Power Parity for hamburgers the SA Rand is undervalued in terms of the US Dollar by 37%. Something I have long suspected!

    Source The Economist

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    Site Caretaker Dave A's Avatar
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    It also means the Euro is substantially over-valued.

    I've started having my doubts about the big mac index being a credible comparison tool, though. Those ratios also correlate fairly closely against a few other numbers - a significant one being the average salary for a skilled artisan. They earn more in Europe than they do in the USA, and in turn in SA. Applies to other categories too.

    So is the big mac index showing that the exchange rate is "wrong," or simply one of a number of possible indicators that reflect the effect of something far more relevant?
    The trouble with opportunity is it normally comes dressed up as work.

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    just me duncan drennan's Avatar
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    Quote Originally Posted by Graeme View Post
    This shows that when it comes to the Purchasing Power Parity for hamburgers the SA Rand is undervalued in terms of the US Dollar by 37%. Something I have long suspected!
    So to strengthen the rand further we should start focussing on exporting hamburgers
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