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McDonald's unsavoury second quarter flounder

The eponymous index was dreamt up by some bright spark at The Economist in 1986 as a means of measuring purchasing-power parity, by taking the locally denominated price of the burger in a country, and then dividing it by the price of a Big Mac in the US to arrive at an implied exchange rate. This is then compared to the official rate to determine if the local currency is over- or undervalued against the US dollar.

For example, a Big Mac in the UK will set you back £2.69, while you could expect to pay $3.57 for the same burger in the US. Divide the former by the latter and you get 0.75. The official exchange rate is currently 0.77, suggesting that sterling is undervalued to the tune of 2.6 per cent.

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