Include Big Mac in your diet, but do not supersize it!

Arguably a better indicator of the relative financial strength of countries, the Big Mac Index scores over traditional exchange rate predictors in some important ways - it has withstood the test of time, it accounts for localised factors better, is less subject to day-to-day fluctuations and, most importantly, it is so simple to use that even I can understand it!

Recently, the Index celebrated its twentieth anniversary. The Economist has tried to introduce other indices based on Coca Cola and Starbucks latte, but nothing has succeeded like the Big Mac Index has. It has reiterated the usual warnings though - the Index predicts long-term trends better than short-term movements. Don't substitute it for traditional exchange rate theory. Use it, as the pun goes, to make the theory more digestible!