Managerial Finance: An Analysis of the Big Mac Index and Dell Laptop Comparison

Running head: MANAGERIAL FINANCE
Managerial finance
Name of the Student:
Name of the University:
Authors Note:

1
MANAGERIAL FINANCE
Contents
Introduction:....................................................................................................................................2
The Big Mac Index:.........................................................................................................................2
Dell Laptop comparison:.................................................................................................................3
Conclusion:......................................................................................................................................6
Recommendation:............................................................................................................................6
References:......................................................................................................................................7

2
MANAGERIAL FINANCE
Introduction:
Initiated by Pam Woodall the Big Mac Index takes a quirky and informal take on the
exchange rates differences. The exchange rate differences for long has been a matter of debate
and curiosity. The reason for changes in exchange rates between two or more currencies has been
searched by the economists. In 1986 Pam Woodall taking the name from McDonald’s hamburger
conducted an informal analysis on the reason of changes in exchange rates. In this document a
detailed discussion has been made on the Big Mac Index to evaluate its logic.
The Big Mac Index:
An annual publication on The Economist is an informal way of measuring the Purchasing
Power Parity, here in after to be referred to as PPP in this document between two different
currencies. The index is developed on the theory that the cost of goods remain the same in two
different countries and thus, the ability to purchase a product would not be affected due to the
difference in exchange rate (Clements & Si, 2017).
The market exchange rates:
According to the theory the goods would cost the same in two different countries and thus, the
PPP holds true despite the changes in exchange rates. The objective of the theory was to make
the exchange rate theory digestible for an ordinary person without the significant knowledge in
Economics (Loveridge & Paredes, 2018).
Big Mac Index obtains the exchange rate difference between two countries by taking into
consideration the prices of a hamburger in the two countries. The price of a Big Mac in a country
is divided by the price of Big Mac in another country to determine the PPP exchange rate. The
resultant value then compared with the actual exchange rate between the two currencies. Based