Exchange-Rate Theory: Gauge and Japanese Yen

exchange-rate theory: Furthermore, the gauge suggests the greenback is massively overvalued against its three biggest rivals the euro 16.6% the Japanese yen 31.2% and the British pound 21.8% . The gauge, invented by the Economist back in 1986, is meant to be a lighthearted guide to whether currencies are trading at their correct level, according to a description on The Economists' website, according to Market Watch. The magazine's editors caution that Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. According to the Big Mac Index, the dollar is overvalued against all but three rival currencies the Swiss franc, the Norwegian krone and the Swedish krona. The Economist Caption outside of wrapper for normal article images The Big Mac Index is based on a popular economic theory called purchasing power parity. On a PPP basis, the trade-weighted U.S. dollar index is 17% overvalued, according to data provided by Deutsche Bank. PPP, as it is widely known, purports to determine whether a given exchange rate is fairly valued based on the relative prices of goods purchased in each country. (news.financializer.com). As reported in the news.