Thursday, January 7, 2010

The Euro Overvalued by 35% Against the Dollar

The Economist has been publishing for many years its “Big Mac Index” of the various currencies undervaluation or overvaluation against the dollar. The Big Mac index is based on the theory of purchasing-power parity (PPP): exchange rates should equalize the price of a same basket of goods in different countries.

The January 6th issue shows that the Chinese yuan is undervalued by some 49% while the euro is overvalued by 35%.

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