Nineteen years after the introduction of the famous Big Mac sandwich, The Economist introduced the Big Mac Index in 1986. The Big Mac Index compares the cost of a McDonald’s Big Mac hamburger between counties in US dollars. You may be surprised by how much the cost varies from country to country. On each end of the spectrum are Switzerland and Taiwan, where a Big Mac costs $8.07 and $2.46, respectively (Dyvik, 2024). How is it that in Switzerland, the same sandwich costs 3.3 times more? The variance highlights the disparity in Purchasing Power Parity (PPP). PPP is the notion that the price of goods shall remain equal between countries when adjusting for their currency exchange rate. And that over time, currency exchange rates will change to maintain PPP between countries (Singh, 2024).

While The Big Mac index is a lighthearted take on PPP, the same assessment can be done with other products to assess if currencies are over or undervalued. For example, in Taiwan, you can purchase 3.3 times more Big Macs than in Switzerland, suggesting that the Swiss Franc is overvalued compared to the New Taiwan Dollar. Put another way, if a Big Mac costs $5.69 USD in America, then relative to the US Dollar, the Swiss Franc is overvalued by 42% and the New Taiwan Dollar is undervalued by 57%.

By recognizing the overvaluation and undervaluation of currencies, you can identify arbitrage opportunities. Arbitrage refers to exploiting the difference in prices of goods by buying in a low-cost market and reselling in a high-cost market. For example, someone could purchase Big Macs in Taiwan for $2.46 each and resell them in Switzerland for $8.07 each. While this example is unrealistic, there are many examples where businesses and individuals take advantage of arbitrage opportunities. Before going on to become a world-class fraudster, Sam Bankman-Fried made his millions using arbitrage to profit from currency trades between countries, namely South Korea (Sigalos, 2024). I personally recall arbitrage opportunities being exploited by many in the Canadian community in which I grew up in the few years following the 2008 financial crisis. The US Dollar became undervalued relative to the Canadian Dollar making it cheaper for Canadians to buy automobiles in America. For a few years, it became somewhat normal for Canadians to import American cars to save money or to resell for an arbitrage profit. However, with time, the purchasing power for automobiles between Canada and the USA came back to parity.

While the Big Mac Index can teach us about Purchasing Power Parity and exchange rates of foreign currencies, it is not a perfect representation. Many other factors influence the cost of goods between countries, including taxes, labor costs, manufacturing costs, and raw material costs. For example, the average wage in Switzerland ($95,070) is triple that of Taiwan ($33,365) meaning a much higher labor cost to produce Big Macs in Switzerland (Worlddata, 2025). Countries may also impose tariffs which tax the importation of goods from other countries, effectively making them artificially more expensive and counteracting any arbitrage opportunity. Whether you are a global traveller or an international businessperson, it is valuable to understand these key principles including foreign currency exchange rates, Purchasing Power Parity, arbitrage, and, most importantly, that they are all influenced by many variables and are constantly changing.

References

Dyvik, E. H. (2024, August 13). Big Mac index 2024. Statista. https://www.statista.com/statistics/274326/big-mac-index-global-prices-for-a-big-mac/

Sigalos, M. (2024, March 27). Penthouse to prison: Sam Bankman-Fried’s journey from crypto king to convicted conman. CNBC. https://www.cnbc.com/2024/03/27/how-ftxs-sam-bankman-fried-went-from-crypto-king-to-convicted-conman-.html

Singh, P. (2024, July 22). Purchasing Power Parity: The Big Mac Index. Investopedia. https://www.investopedia.com/articles/fundamental-analysis/ppp-big-mac.asp

Worlddata. (2025, January). Average income around the world. Worlddata.Info. https://www.worlddata.info/average-income.php