Jiseok Oh
Background information
<About Big Mac index>
“The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. It ‘seeks to make exchange-rate theory a bit more digestible.’ The index, created in 1986, takes its name from the Big Mac, a hamburger sold at McDonald’s restaurants.”
For example, the Korean Big Mac’s price is 4,500 won, which is 3.84 dollars in dollars, and 5.3 dollars in the US. Since the exchange rate between Korea and the US is 1,145 won per dollar. It can be seen that the won is 27.5%(1-(3.84/5.3)) undervalued than the dollar.
<About Tall Latte index>
The Tall Latte Index, like the Big Mac Index, is an index that compares the prices of Starbucks Tall Lattes that are spread around the world to know the economic level of a country. The calculation method is also the same as the Big Mac index.
Purpose
The goal is to be able to program the Big Mac index and the tall latte index and to prove it
Programming Design and Practice by C language for currency related index
Key assumption
Currency value declines and increases in real time due to changes in currency value.
The currency changes in real time, but the exchange rate can be expressed in the key currency, the dollar.
The Big Mac Index and Tall Latte Index as currency related indexes can be used as indexes that reflect currency value according to exchange rates.
Programming Procedure
<Search equation of Big Mac index>
Values
- MU : Monetary unit that user want to know BIg Mac index
- MC : Big Mac prices in countries where users want to know the Big Mac index
- ER : Exchange Rate
- 5 : US Big Mac price
Equation
- Big Mac index = MCER5
<Search equation of Tall Latte index>
Values
- MU : Monetary unit that user want to know Tall Latte index
- MC : Tall Latte prices in countries where users want to know the Tall Latte index
- ER : Exchange Rate
- 3.85 : US Tall Latte price 5
Equation
- Tall Latte index = MCER3.65
<Make Big Mac index and Tall Latte index calculator with C language>
Values
- reply : Record user’s reply
- MU : Monetary unit that user want to know Big Mac index or Tall Latte index
- MC : Big Mac or Tall Latte prices in countries where users want to know the Tall Latte
index
- ER : Exchange Rate
- FIN : Final calculated value
Functions
BIG : Calculate Big Mac index
TALL : Calculate Tall Latte index
Main : print question for user and call function BIG of TALL
Final code
<Function Main>
Figure 1. Main Function
In Main(Figure 1), the program asks the user a few questions. You can answer with 1 or 2, and if you answer with a character other than 1 or 2, an error message is displayed.
Through the answer variable, the user’s answer is recorded, and it is possible to determine whether to use the Big Mac index calculator or the Tall Latte index calculator. When everything is done in the Main function, the BIG function or the TALL function is called.
<Function BIG>
If you select the route from the main function to the BIG function(Figure 2), the big function is called. BIG Function provides a Big Mac index calculator and asks a few questions to get the BIG Mac index.
In the BIG function, after calculating the Big Mac index, if it is 1 or more, it indicates that it is overvalued compared to the dollar, and if it is less than 1, it indicates that it is undervalued compared to the dollar.
Figure 2. BIG Function
<Function TALL>
If you select the route from the main function to the TALL function(Figure 3), the toll function is called. Like the BIG function, the TALL function derives the Tall Latte index after a few questions.
Like the BIG function, the TALL function is programmed to have a different output based on the Tall Latte index of 1.
Figure 3. TALL Function
Result
Big Mac index calculating
Real index
A Big Mac costs 4,500 won in South Korea and US$5.66 in the United States. The implied exchange rate is 795.05. The difference between this and the actual exchange rate, 1,097.35, suggests the South Korean won is 27.5% undervalued
In Big Mac index calculator
KRW was esteemed 27.5247% lower than USD
Tall Latte index calculating
Real index
Tall Latte index in South Korea : 7% overvalued than USD
In Tall Latte index calculator
KRW was esteemed 7.3332% higher than USD
Discussion
The current program has a fixed US price of Big Mac and Tall Latte. How can you develop the program if these prices change? If the US prices for Big Macs and Tall Lattes change, the program will also need to be modified. However, it makes no sense to keep changing the fixed value. Therefore, the price of the American Big Mac and Tall Latte can be input as a variable, and in the future, the Big Mac Index and Tall Latte Index can be displayed by simply typing the country name by connecting to a real-time database.
Conclusion
Through this experiment, it was found that the value of money can be compared with a specific object. In modern society, the exchange rate changes in real time, but the price of goods does not change in real time. Therefore, if you compare the price of a product with the exchange rate, you can see which product should be bought in which currency and whether it is an advantage.
Especially in the case of software. Because software is downloaded rather than physically bought, it is easier to benefit from exchange rates. In the old case, Microsoft sold Windows at a 90% discount in the Czech Republic. But at this time, even people from other countries came to the Czech server and bought Windows. It is possible to purchase software more easily and efficiently without physically moving like this.
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