Big Mac Index reveals that the Rand is 50% undervalued.
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GUEST – Andre Cilliers - Director and Currency Risk Strategist at TreasuryOne
The latest update to The Economist's Big Mac index shows that - theoretically - the rand should be trading at R8.94/dollar.
The index compares the prices of McDonald's Big Mac hamburgers in different countries to determine whether currencies are overvalued, or too cheap.
The idea is that an identical product must cost the same across countries and that a disparity indicates whether the local currency is not at the correct value. The index has been compiled since 1986.
A Big Mac costs R49.90 in South Africa and $5.58 in the United States.
"The implied exchange rate is 8.94. The difference between this and the actual exchange rate, 17.78, suggests the South African rand is 49.7% undervalued,"
The latest update to The Economist's Big Mac index shows that - theoretically - the rand should be trading at R8.94/dollar.
The index compares the prices of McDonald's Big Mac hamburgers in different countries to determine whether currencies are overvalued, or too cheap.
The idea is that an identical product must cost the same across countries and that a disparity indicates whether the local currency is not at the correct value. The index has been compiled since 1986.
A Big Mac costs R49.90 in South Africa and $5.58 in the United States.
"The implied exchange rate is 8.94. The difference between this and the actual exchange rate, 17.78, suggests the South African rand is 49.7% undervalued,"
