CASASOPHIA CO (JUN 11 ADAPTED)-IRPT

If the current exchange rate is MS per € 116 Then using PPP the exchange rate should go to 116 x 1.108/1.022 = 125.8 MS per € If a € buys more MS then the MS is depreciating in value. I explain this in my free lectures on forecasting spot rates. However they are only a forecast. As I also explain in my free lectures on the managing of foreign exchange risk, forward rates are not a forecast - they are always determined by money market interest rates (in real life as well as in exams).