As you travel internationally it can be difficult to know how far your money will really go. Even if you’ve checked the exchange rate before traveling, you may not know how much you can actually get for 5 pounds, euros, or krones—that’s because some currencies are under or overvalued, making goods either more or less expensive than they would be in the U.S.
To help mitigate this problem, The Economist developed the Big Mac Index, which measures whether currencies are at their “correct” level by comparing the cost of a Big Mac all around the world.
For example, a Big Mac might cost $4.50 in the U.S. and 90 INR in India; but, when you convert the Indian price from rupees to dollars, the Indian Big Mac actually costs about $1.50, which makes the Indian rupee undervalued by about 67 percent (because the Big Mac is about $3 cheaper).
When a currency is undervalued, you’ll actually get more for your money when you travel there. And, of course, when a currency is overvalued, you’ll get less for your money when you travel there.
The world of currency exchange can be pretty confusing, so to learn more about the Big Mac Index, watch the video below:
This guest post was provided by Jessica Edmondson who has traveled abroad to Mexico as well as England. Her latest adventure has taken her to move from Florida to Washington. You can follow her on Twitter @jsedmond.