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part b of the question asks us to compute npv of deposit in a foreign currency on which we get annualpayments for 3 years.
he has given us interest rates and inflation rates.
setting up/understanding the question was not a problem but….
why is he using PPPT to compute the rate of initial investment and using IRPT to compute forward rates over the 3 years of annual receipts.
thanks
Forward rates are always determined by interest rates and so we use the interest rate parity formula.
When forecasting future spot rates in the exam, we always use inflation rates (and therefore the purchasing power parity formula).
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