Saturday, July 30, 2011

Brazilian Real: Most Overvalued Currency in the World

BZF is the ETF that tracks the Brazilian currency is ETF. We track them all live here.

The Economist runs a popular "Big Mac" index that tracks the price of Big Macs around the world.

"To estimate the current fair value of a currency we use the “line of best fit” between Big Mac prices and GDP per person. The difference between the price predicted for each country, given its average income, and its actual price offers a better guide to currency under- and overvaluation than the “raw” index. The beefed-up index suggests that the Brazilian real is the most overvalued currency in the world; the euro is also significantly overvalued. But the yuan now appears to be close to its fair value against the dollar—something for American politicians to chew over".

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