Suppose the current exchange rate for the Russian ruble is RUB 37.72. The expect

Question

Suppose the current exchange rate for the Russian ruble is RUB 37.72. The expected exchange rate in three years is RUB 34.56. 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 37.72. The expected exchange rate in three years is RUB 34.56. Assume that the anticipated inflation rate is constant for both countries.(Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

Let the annual difference in inflation rate be r

Then, Exchange rate 3 years from now is the inflation adjusted exchange rate today

i.e 34.56 = 37.72 *(1+r)3

(1+r)^3 = 34.56/37.72 = 0.916225

(1+r) = 0.916225 ^ (1/3) = 0.971257

r = 0.91257 - 1 = -0.02874 or -2.87%

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