The correct answer is:

ZAR spot rate under PPP = [1.07/1.12](0.185) = $0.1767/rand.

The metrics used are effectively [(Expected S.A. inflation / Expected U.S. interest rate) * Base ZAR spot rate].

MY QUESTION IS: What PPP equation or combination of equations do I need to use in conjunction with the information above to arrive at the correct answer of $0.1767/ZAR? Please also explain why.

Omni Advisors, an international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows: Base price level Current U.S. price level Current South African price level Base rand spot exchange rate Current rand spot exchange rate Expected annual U.S. inflation Expected annual South African inflation Expected U.S. one-year interest rate Expected South African one-year interest rate 100 105 111 $ 0.185 $ 0.168 9% 7% 12% 10% Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively): a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.)