The way to easily interpret the currency values of various countries.

44 views
0

The way to easily interpret the currency values of various countries.

In: 4

The easy way? Don’t look at what it can convert today, look at what it could have converted in the last week/month/year. That will tell you if the value of the currency is going up or down.

If you’re question is about the “value” of the currency ie what it might actually be worth (rather than how to interpret the numbers in the rates themselves), one way is to use the “Big Mac Index”.

https://www.economist.com/big-mac-index

How much does a Big Mac cost in different countries? This is an easy, standardised product to give an idea of how different currency values are from their “true” value (this is simplified here but you get the idea).

If a Big Mac cost 1 USD in the US and you can convert 1 USD to 5 XYD, you might expect that a Big Mac in country XY costs 5 XYD as that is how it converts over at the exchange rate at your local bank.

If a Big Mac in country XY actually costs 10 XYD, you may say that the XYD currency is expensive (vs USD at least) because you’re spending more to buy a Big Mac than the exchange rate suggests, and vice versa.

This concept is called purchasing power parity (PPP) and is one of the main ways of assessing currency values.