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Essay / Research Paper Abstract
A 4 page paper exploring the usefulness of the Big Mac Index, how it is used in global financing and how it can be used in managing risks, using the February 2007 edition. Britain's The Economist introduced the Big Mac Index in 1986 as a comparison of the relative value of world currencies from the perspective of unique British humor. The index proved to be highly useful and popular, however, and The Economist has published an updated version every year since its 1986 debut. Bibliography lists 6 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSeconBigMac.rtf
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Unformatted sample text from the term paper:
introduced the Big Mac Index in 1986 as a comparison of the relative value of world currencies from the perspective of unique British humor. The index proved to be
highly useful and popular, however, and The Economist has published an updated version every year since its 1986 debut. The purpose here is to explore its usefulness, how it
is used in global financing and how it can be used in managing risks. Calculation Base Economists often use the "sample basket" of
goods or services to compare relative prices of the goods filling the sample basket in two or more countries. The premise is that the total price of the sample
basket should adjust so that it is the same price in two countries; the degree and direction in which one currency moves to match the equivalent of another in turn
is used to predict future exchange rate movement. In other words, the index "is based on the theory of purchasing-power parity (PPP), according
to which exchange rates should adjust to equalise the price of a basket of goods and services around the world" (The Big Mac index, 2007). The results of the
comparison illustrate "much, in Big Mac PPP terms, selected currencies were over- or undervalued at the end of" (The Big Mac index, 2007) the survey period. In the twenty
years it has been in use, it has led to creation of the term "burgernomics" (Twenty years of the Big Mac index, 2006).
Purchasing Power Parity (PPP) "is a measure of the relative purchasing power of different currencies" (The Hamburger Standard, 2006). It measured "by the price of the same goods in
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