In this article,how have they calculated the 1.5 yr and 6mth spot rates to use at conversion for the projected cash flows?
https://www.accaglobal.com/ie/en/student/acca-qual-student-journey/qual-resource/acca-qualification/p4/technical-articles/international-project-appraisal.html
Thanks alot sir
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Spot rates at conversion
12y ago#1He has used the purchasing power parity formula from the formula sheet.
The relevant spot rate now is 175; the rates of inflation are 5% in the home country and 30% in the foreign country.
So the forecast spot rate in 1 years time is 175 x (1.30/1.05) = 217
Similarly in 2 years time it will be 217 x (1.30/1.05) = 269
For the rate in 6 months time he has taken half way between the current spot and the rate in 1 years time. For the rate in 18 months time he has taken half way between the 1 year and 2 year forecasts.
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