Starbucks Index

AAA

DEFINITION of 'Starbucks Index'

A representation of purchasing power parity published by The Economist that determines what a country's exchange rate would need to be in order for a Starbucks tall latte to cost the same as it does in the United States. Using this index, the purchasing power of each individual national currency can be reflected in the U.S.-dollar cost of a latte in that country.

This can also be referred to as the "tall latte index."

INVESTOPEDIA EXPLAINS 'Starbucks Index'

In theory, if currency markets function with proper efficiency, the price of an identical product, such as a Starbucks latte, should have an identical U.S.-dollar cost in any country. Therefore, if a latte costs significantly less in one country than another, this suggests that the country with the cheaper latte price has an undervalued currency.

RELATED TERMS
  1. Burgernomics

    An economics term made popular by the Big Mac Index published ...
  2. Currency

    A generally accepted form of money, including coins and paper ...
  3. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  4. Purchasing Power

    1. The value of a currency expressed in terms of the amount of ...
  5. Big Mac PPP

    A survey done by The Economist that determines what a country's ...
  6. Relative Purchase Power Parity

    An expansion of the purchase power parity theory, which suggests ...
RELATED FAQS
  1. If a country's currency is determined by the strength of its economy, why isn't the ...

    Generally speaking, when Country A's currency is worth more than that of Country B, it does not necessarily mean that Country ... Read Full Answer >>
Related Articles
  1. Forex Education

    Global Trade And The Currency Market

    Learn how the Bretton Woods system got the ball rolling for world trade.
  2. Forex Education

    Forex Tutorial: The Forex Market

    In this online tutorial, beginners and experts alike can learn the ins and outs of the retail forex market.
  3. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  4. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  5. Forex

    Understanding Currency Carry Trade

    A currency carry trade is a long-term investment strategy used primarily by large institutional investors. The purpose is to make a profit over time from differences in interest rates between ...
  6. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  7. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  8. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.
  9. Investing Basics

    R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  10. Insurance

    The Government And Risk: A Love-Hate Relationship

    Though the U.S. government can help its citizens by subsidizing risky loans, the costs always come back to the taxpayers.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center