Dear John,
can you please explain when calculating forward exchange rate, when should I use interest rate parity and when calculate using purchasing power parity?
Home country - Interest rate 3% per year,
Foreign country - Interest rate 7% per year,
Home country - Inflation 2% per year,
Foreign country - Inflation 5% per year,
Spot rate 20.00 Dinar per $
many thanks indeed!
Ask the Tutor ACCA FM
interest rate parity vs. purchasing power parity
8y ago#1Forward rates are calculated using interest rate parity.
Future spot rates are estimated using purchasing power parity.
I do suggest that you watch my lectures on both of these because I do explain (with examples) and explain why :-)
thank you for a quick reply
8y ago#3You are very welcome :-)
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