A lot of media attention has recently been focusing on the potential for a Greek default and exit from the Eurozone, and last Tuesday night Greece failed to repay its IMF loan, becoming the first developed country to default with the IMF. Last Sunday Greece also imposed capital controls to prevent capital flight from occurring. Capital flight is the situation whereby residents and firms move money out of a country because they are scared that they will otherwise lose it. This may be due to government taxation, requisition (some Cypriots who had money deposited with banks lost 25% which was taken by the government through an emergency tax in 2013) or fear of bank collapse. [...]
The Big Mac Index is published by the Economist and is used to demonstrate the idea of Purchasing Power Parity (PPP) and is a method of showing whether a currency is under or overvalued in relation to the US Dollar.
The theory behind PPP is that all currencies should be equal, not in nominal terms, but in purchasing terms. So I should be able to purchase a good in the UK using Pound Sterling for the same price as if I were to change my money into Euros and purchase the exact same good in France (ignoring transaction costs). Why is this? [...]