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Hi. For the above article, the spread of the spot exchange rate is Dinar/$ 150 – 175. So, if I buy Dinar, I will use 150, and if I sell Dinar, I will use 175, right?
So the rationale of using 150 initially (now), and 175 in subsequent periods (and increasing by PPP) is because… the initial investment (Machinery needs to be purchased in Zanadia at a cost of dinar 1000m at the start of the project) is made in Dinar, and therefore, Dinar needs to be purchased at 150 spot rate. However, in subsequent periods, as Penn Co is making revenues in Dinars already, and Penn Co would want to sell the Dinars earned to buy their $, then the 175 rate (and PPP subsequently) are used to convert them back to $?
Please may I know whether my interpretation above is correct? Thank you.
Yes, it seems correct 🙂