The Big Mac Index and the Indian Rupee
This is a post that has been blogged on Zoo Station earlier, but I figured it was relevant and interesting enough for IE readers as well.
The Economist’s Big Mac Index is an easy (even if overly simplistic) way to find out which currencies are under-valued and which are over-valued, depending on the cost of a McDonalds burger in the country. The latest version of the Big Mac Index is now available. Not much difference from the last time around. The Renminbi is the most undervalued currency in the world and the Swiss CHF is the most overvalued.
It’s a pity the Economist does not include the Indian Rupee on the Index. However, since we at IE believe in regular contributions to the human knowledge pool, I have worked this out for you, dear reader. If we assume that a Big Mac or its closest equivalent (the Maharaja burger?) costs Rs 55 in India ($1.26 at an exchange rate of 43.5), then we find the Indian rupee is undervalued by the exact same amount as the RMB Yuan — 59 per cent. This means that you need to add the INR to the RMB stash you’re already hoarding, to cash out at a later date.
This isn’t good news for the outsourcers (including, yours truly)… maybe we need to get some forward hedges in place?
Comment by Prashant — August 14, 2005 @ 2:30 am
I have a beef with your analysis.
To be more specific, a Big Mac is a sandwich with two beef burgers/patties held within, separated by an additional (third) slice of bread.
There is no beef in a Maharaja Mac (or any other McDonald’s product in India), therefore the comparison is flawed. (And this is probably why the Indian Rupee is excluded from The Economist’s analysis)
Comment by Siddharth — June 21, 2006 @ 12:24 pm