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Purchasing power parity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Purchasing power parity

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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    Posts
  • May 31, 2016 at 2:02 am #318231
    emay
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    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.

    May 31, 2016 at 7:30 am #318284
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    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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