Confused by currencies? Buy a Big Mac

A Big Mac hamburger at a McDonald's restaurant in Moscow, Russia.
Andrey Rudakov | Bloomberg | Getty Images
A Big Mac hamburger at a McDonald's restaurant in Moscow, Russia.

The euro is sliding, the ruble has crashed and a surging Swiss franc recently sank the fortunes of more than a few currency traders on the wrong side of their bet.

It's a volatile time in foreign exchange, a notoriously difficult market to bet on. To do so, you have to decide whether one currency is over or undervalued in relation to another. For that, you'll need econometric models made up of hundreds of algorithms built by rocket scientists.

Or you could just go buy a lot of Big Macs.

That's the basic methodology underlying a simpler currency valuation model set up by the editors at The Economist magazine. Once a year, they dispatch staffers around the world to head to the nearest McDonald's and order a Big Mac. And expense it.

According to the latest reading of the Big Mac Index, the value of the dollar continues to fatten in much of the fast-food eating world.

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Among the 57 countries tracked in the latest run, Switzerland topped the chart. A burger purchased under the golden arches in Zurich will set you back $7.54 in dollar terms, on average, while the average price in the U.S. this month was $4.79.

The Swiss franc became hotter than a batch of freshly cooked fries after Switzerland's central bank earlier this month triggered a stampede in the foreign exchange when it stunned investors by scrapping its cap on the exchange rate against the euro.

At the bottom of the Big Mac list, the Ukrainian hryvnia is undervalued by 75 percent, which means you can buy a Big Mac—in dollar terms—for just $1.20.

Aside from central bank moves and local turmoil, the editors note that two broad trends have been roiling the currency markets since the last time they went burger shopping six months ago. Currencies of big oil exporter—like Russia—have been hit hard. Meanwhile, the end of the Federal Reserve's easy-month interest rate policy has pushed the value of the dollar higher.

Read MoreEurope on sale: What the euro's slide means for you

As the editors point out, the index isn't perfect.

"Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible," they note.

The index is based on the idea that the rate of exchange between currencies should reflect the price people pay for the same goods and services from one country to the next. Economists call this the theory of purchasing power parity.

So The Economist looks at just one item, a Big Mac, in more than 50 countries around the world as a standard measure of value. The index isn't perfect; in India, they don't serve Big Macs, so the editors had to substitute a Maharaja Mac, which is a chicken sandwich.

By converting the local prices into dollars, the index provides an indication of whether a currency is over or undervalued in a given country.

The theory is that the local price of a product with a consistent value around the world is a good proxy for the purchasing power of that local currency.

The keepers of the index concede the methodology has limitations. Local prices, for example, can also be skewed by the relative demand for burgers in a given country, where local cuisine and tastes vary widely.

Still, in the nearly three decades they've been munching their way through the ups and downs of exchange rates, the index has been cited in economic textbooks and studied by academics.

As a result, the index has been refined over the years to address some of its critics. The average price of a burger, for example, should be lower in poor countries because labor costs are lower—so the adjusted index takes per capita GDP into account.