Purchasing Power Parity Calculator

PPP is an economic theory that compares currencies through a basket of goods approach, suggesting exchange rates should equalize prices internationally.

The Big Mac Index, created by The Economist, is a popular real-world application of PPP theory using McDonald's Big Mac prices worldwide.

A currency is undervalued when the PPP rate is higher than the market rate, suggesting it should appreciate to reach equilibrium.

A currency is overvalued when the PPP rate is lower than the market rate, indicating it may depreciate over time.

PPP is useful for long-term exchange rate predictions but may not accurately reflect short-term market movements.

Real-world factors like trade barriers, transportation costs, and non-tradable goods can cause deviations from PPP.

PPP is commonly used by economists and international organizations to compare living standards and GDP across countries.

The Law of One Price states that identical goods should sell for the same price in different markets when expressed in a common currency.