Use and Limitations of Purchasing Power Parity for the Conversion of Damages Calculated in Foreign Currency: An Updated Look

The number and variety of cases before U.S. courts involving the award of damages to foreign plaintiffs have increased over the last few decades. During the 1990s, there was a spirited debate among some forensic economists (FEs) about the proper way to convert damages calculated in foreign currency to U.S. dollars (USD). The emerging consensus indicated that the purchasing power parity (PPP) exchange rate constitutes the appropriate conversion factor. The debate however, was of limited applicability since it pertained to particular cases of unstable or manipulated exchange rates and overlooked the potential for exploiting price differentials in foreign exchange markets. In light of these limitations, this study (1) expands the discussion by considering a broader range of situations that require damages conversion; (2) assesses the relative merits of newly available PPP exchange rate data; and (3) investigates proper conversion matters to avoid over- or undercompensating foreign nationals.