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Dear Mr John,
In my previous calculations using purchasing power parity formula, i normally use the based country’s inflation rate as my denominator and the country to borrow or receive from as my numerator and i have always gotten it right.
But in the case of Buryecs co, which is base in the Eurozone and to operate a franchise in Wirtonia, I used the same method and found that the examiner did a reverse.
Kindly clarify this for me. Thanks.
The ‘base’ currency (as I explain in my lectures) is the currency against which the other currency is being quoted.
So here, the exchange rate is quoted as €0.1430 = $1, so for the purposes of PPP, the $ is the base currency.
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