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When i was practicing with some past year, i notice and confuse that some question need to use exchange rate times purchasing power parity formula however some don’t need.
How we can identified when need to use it and when no need.
I can’t give a perfect answer without you referring to the specific questions.
I assume you are referring to questions where the cash flows are calculated in a foreign currency and then need converting to the home currency before discounting to get the NPV. It is normally in these situations that you need to forecast the future exchange rates.
If all you are given is the current spot rate and the respective inflation rates in the two countries, then you use the PPP formula to forecast the future exchange rates.
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