AnalystAlan

janakisri Wrote:
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No interest rates , and now no previous rate
either? Cm’on ! Cannot have parity without 3
things . Parity with just 1 is impossible and with
2 it is guess work. All of you are wrong. Should
be :

Cannot say for sure given the information on past
and present fx rates alone.Need interest rate
differential or at least a foward rate two years
ago
I am sorry but I dont agree with you at all.
The idea is that if the spot rate follows PPP there is no competitive advantage for anyone. But if the spot rate behaves differently than there is advantage for someone.
If PPP says that future spot rate should be 1.0615 but it is in fact 0.9808 the us exporters will have less usd from their exports and therefore they have comp. disadvantage. (therefore C is ok and A is not)
Also If PPP says that future spot rate should be 0.9153 but it is in fact 0.9808 the us exporters will have more usd from their exports and therefore they have comp. advantage. (therefore B is not correct)
the question is not to calc rate predicted by PPP but what effect certain predicted rate has on comp. advantage.
ok?