Big Mac index act as an indicator of whether currencies stay at their correct level. Big Mac index was established by an economist based on the theory of Purchasing Power Polarity which theorize on the notion that long run exchanges are expected to move in the rate expected to equalize the basket prices of goods and services throughout the world. At market exchange rates if a good is cheaper, for instance, a burger 44% cheaper in China than in the US suggest that raw Big Mac index of Yuan is 44% undervalued compared to dollar currency (the Big Mac index , 2011) .
Additionally, the Purchasing Power Parity (PPP) signals where the exchange rate should proceed in the long run. Consequently, lines of best fit are used in the estimation of the current fair value of currency between a Big Mac index prices and the GDP per person. However, the difference in the price projected for each country give its actual price, and average income provide the best guide to determine whether the currency is undervalued or overvalued than the raw index. Big Mac index has been evaluated critically many endorsing it while other pointing flaws on this tool (the Big Mac index , 2011) .
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Various factors contribute to variation for goods prices affecting the Big Mac Index. These factors include transport cost as imports tend to cost higher than the locally produced products. Other factors are different taxation, government intervention, market competition, non-traded services, and inflation (O'Brien & de Vargas, 2017) .
The consistency of the Big Mac index is the secret source that guides exchange rates. One major flaw of the Big Mac index is based on the theory of PPP where the price of goods should be identical everywhere making most exchange rates off the track. Although Big Mac index predicts poorly the exchange rates in a short period, it is the best tool in predicting exchange rate in the long term (O'Brien & de Vargas, 2017) .
Reference
The Big Mac index (2011) Currency comparisons, to go Retrieved from: http://www.economist.com/node/21542808
https://www.economist.com/graphic-detail/2011/07/28/currency-comparisons-to-go
O'Brien, T. J., & de Vargas, S. R. (2017). The Adjusted Big Mac Methodology: A Clarification. Journal of International Financial Management & Accounting , 28 (1), 70-85.
