1. Purchasing Power Parity
International Business
Southeast University
M. Shahadat Hossain
MSH 2017

2. PPP Measures economy’s output in terms of buying power
Better measures of standard of living
PPP Theory: the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services in any two countries.
MSH 2017

3. Big Mac Index
Big Mac Index: Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.
MSH 2017

4. MSH 2017

5. MSH 2017

6. MSH 2017