Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00 _____
Wonderland

8.98 baht

0.52
Oz

723 rupees

42.11
Pandora

30.04 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the baht may be:

Question

Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00	_____
Wonderland

8.98 baht

0.52	
Oz

723 rupees

42.11	
Pandora

30.04 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the baht may be:

BlackTom AI · Accepted Answer

Implied exchange rate between the baht and the peso equals the price of a Big Mac in Wonderland divided by the price in Neverland: 8.98 baht / 16.25 pesos = 0.55292 baht per peso.

Relevant concepts:
- The Big Mac Index uses purchasing power parity (PPP): PPP-implied exchange rate = local price of Big Mac / foreign price of Big Mac.
- If the actual exchange rate differs from the PPP-implied rate, the currency is misaligned: when the actual currency price (in LCU per foreign unit) is lower than implied, the local currency is overvalued; if higher, it is undervalued.

Step-by-step calculations:
1. Compute implied exchange rate (baht per peso):
   8.98 ÷ 16.25 = 0.55292 baht/peso.
2. Compare to the actual exchange rate given:
   Actual = 0.52 baht/peso.
   Actual (0.52) < Implied (0.55292).
3. Convert Wonderland Big Mac into Neverland pesos at the actual rate to see the price gap:
   8.98 baht × (1 peso / 0.52 baht) = 8.98 ÷ 0.52 = 17.2692 pesos.
   Neverland Big Mac costs 16.25 pesos, so the Wonderland Big Mac is more expensive when converted.
4. Calculate the percentage misalignment:
   (17.2692 − 16.25) ÷ 16.25 = 1.0192 ÷ 16.25 = 0.0627 = 6.27%.
   This means the baht is about 6.3% stronger (overvalued) relative to the peso than PPP implies.

Why the correct answer is “overvalued”:
- Because the actual exchange rate (0.52 baht/peso) is below the PPP-implied rate (0.5529 baht/peso), a peso buys fewer baht than PPP would predict; equivalently, converting Wonderland prices into pesos at the actual rate yields a higher peso price than in Neverland (17.27 vs. 16.25), so the baht is overvalued relative to the peso.

Why other possibilities are wrong:
- “Undervalued” would require the actual baht/peso rate to be higher than the implied rate (meaning baht buys fewer pesos than PPP predicts); it is not.
- “Fairly valued” would require actual ≈ implied; the two differ by about 6.3%, so they are not in parity.

Conclusion: The baht is overvalued (matches the provided answer: overvalued).

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