The exchange rate that would equalise the price of a Swiss Big Mac with an American one is SFr1.55 to the dollar; the actual exchange rate is only 0.96. [1]
As always, you are welcome to take up a very big CHF loan and put your money where your mouth is ;) I expect you have a 50% chance of making money.
The actual explanation is a lot simpler; McDonalds employees are more expensive in Switzerland than in the US. You can see the same effect where I live, in Norway.
Your first point isn't too far off the mark. If goods are really 60% more expensive in Switzerland than in the US, then you'd expect people/corporations/institutions in Switzerland to use their CHF to buy dollars, buy goods in the US at a large discount and have them shipped to Switzerland, or for Swiss companies to hire US employees and pay them in USD, thus driving the USD/CHF exchange rate towards purchasing power parity.
Up to transaction costs (inc shipping) and trading restrictions, this really should happen, so it's interesting to explore why it doesn't. Typically the culprits are artificial limitations (e.g. international trade restrictions) or low-value goods where shipping costs are large relative to the cost of the item, or goods which spoil easily and so can't be easily shipped.
If you can't explain the disparity with transaction costs and trade restrictions, then there must be some other reason for CHF being so high relative to the USD. One possibility - CHF is viewed as a hedge for various risks (inflation, market crashes). It is typically anti-correlated with the S&P500, for example, and correlated with market volatility, so it's good to be holding it in a crisis. The same applies to JPY, and the opposite applies to AUD and CAD, which are seen as risk-on currencies.
Just for the record, I am not currently arguing with you, but I just thought I would point out something from real-world experience which starkly contradicts the "ideal" economic equilibrium you describe.
In my experience as a Norwegian, the parity argument isn't even close to true in the real world. There are lots of non-perishable goods here which are imported but are a lot more expensive than they are in the US. For reference, there is a 25% VAT on everything and there is occasionally an import tariff on the order ot 5%. Also some special taxes on vehicles, tobacco, alcohol and fuel, but I'll keep those separate.
Most goods here are a lot more expensive than abroad. Clothes and shoes are 2-3 times more expensive than in the US. Ditto for furniture and most non-perishable goods you would buy in a store. All food is 2-3 times more expensive, even imported, canned goods. This is in line with the labor required to stock and operate a store. Electronics are usually ~30-40% more expensive than abroad if you get them in the right place, which does more or less match the parity theory. My guess is that this is because buying these goods on the Internet is a viable option (in contrast to groceries, clothes, shoes, food, medicine, furniture etc). Hence these retailers are forced to conform, or go out of business. I am not sure how they are able to do this, whereas a clothing store or a supermarket is not. But this is what I observe. The cheapest electronics retailers are very low on staff and high on automation.
Long story short, locally labor-intensive products are obviously a lot more expensive in expensive countries. But higher salaries also have a very large effect also on the cost of imported goods, because there is a lot of labor involved during the shipping, import and sales process. If you are able to automate away some of this, you have a massive business opportunity. But it's a very obvious opening, so it is not a trivial task.
Sounds about right. My ballpark estimate just now arrived at $67. It's really funny whenever someone complains that the Bay Area is so expensive; in all areas except housing it's a lot cheaper than where I live. Salaries are higher too, if you're in software. If you work on McDonalds, though, you should probably be in Norway.
Interesting... earlier this year I was going to go for a 'Chicago Style' pizza in Moscow. Would have been around $42. Decided to go to Sbarros (closer). Initially ordered one of these "everything pizzas": $50. "nyet nyet nyet" I shouted. Got a more basic cheese/pepperoni deal for a mere... $19 I think (IIRC).
I understood I was getting 'western' luxuries in an expensive city, but it really drove home the concept of "cost of living" someplace moreso than abstract calculators. :)
There are some on-line electronics stores that run quite efficiently. In these places, the price is much closer to the USD equivalent in similar stores in the US. I think this supports the argument above related to Higher labor costs driving up prices.
TBH, of all the different companies out there, McDonald's is the one that I am shocked has not become far more automated. They operate on a scale that no other food industry business operates, yet many of the tasks are still done by people. Why don't we have fully automatic fry machines by now for example?
Some projects take off, some fail. I like the automated order machines, but maybe they confuse too many people.
They probably don't roll all this out super fast, because being as large as they are, there's enormous risk in changing everything over night. I'm not sure, they may have to balance the shiny new methods against the interests against franchisees, who don't want to constantly retrain employees. But probably (hopefully) most of the good ideas are being tried out in some McDonald's somewhere.
But maybe it's easier to experiment with things on the margin at that size, so replacing your entire burger process probably lags a few years behind the technology.
Inertia and bureaucracy. Things stay the same because there aren't enough people that are going to make it a mission to automate these processes. They're making enough money the way things are.
You can say the same for any corporation or institution out there. Why are colleges still teaching the same way since 1850?
I get your point, however is it really true to say that? If it were, people would sell the currency to get out while the going is good wouldn't they? How could it stay consistently over priced?
In a certain sense it's always true that free-floating currencies are "correctly valued", in the sense that their value is what the market currently is willing to pay. As far as I know, CHF has no exchange restrictions or capital controls, so it's valued at whatever forex traders are willing to pay for it. If anything, the Swiss Central Bank has been trying to intervene on the other side, to bring the price down through monetary policy (due to worries that the high CHF value is hurting exports).
== Swiss Franc is most overvalued currency
[1] http://www.economist.com/blogs/graphicdetail/2012/01/daily-c...