Suppose the current exchange rate for the Russian ruble is RUB 34.59. The expect

Question

Suppose the current exchange rate for the Russian ruble is RUB 34.59. The expected exchange rate in three years is RUB 37.69. Assume that the anticipated inflation rate is constant for both countries.(Enter your answer as directed, but do not round intermediate calculations.)

What is the difference in the annual inflation rates for the United States and Russia over this period?(Negative amount should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Suppose the current exchange rate for the Russian ruble is RUB 34.59. The expected exchange rate in three years is RUB 37.69. Assume that the anticipated inflation rate is constant for both countries.(Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

The difference between the exchnage rates of at two points of time is due to the inflation rates that are prevelent in the two countries according to purchasing power parity (PPP)

Hence the difference between the inflation of the two contries is (37.69-34.59)/34.59 =0.089

Hence the difference in inflation rates is 8.9%

Since this is for 3 year period, the annual inflation is 8.9/3 = 2.97% per annum.

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