Confused about currencies? Think Big Macs

Exchange-rate theory. Currency misalignments. Purchasing-power parity. What’s it all mean?

The Economist’s Big Mac Index has long helped the currency challenged determine whether their hard-earned dollars are over- or undervalued. “[T]he average price of a Big Mac in America in July 2015 was $4.79; in China it was only $2.74 at market exchange rates. So the ‘raw’ Big Mac index says that the yuan was undervalued by 43% at that time.”