Final answer:
According to relative purchasing power parity (PPP), the Swiss franc is expected to appreciate against the Russian ruble due to Russia’s high inflation rate compared to Switzerland’s low rate, indicative of the ruble's depreciation and the franc's value maintenance or increase.
Step-by-step explanation:
If Russia’s inflation rate is 100 percent over one year but the inflation rate in Switzerland is only 5 percent, according to relative purchasing power parity (PPP), the Swiss franc’s exchange rate against the Russian ruble should increase. This adjustment is because high inflation in Russia is indicative of decreasing purchasing power of the ruble, likely leading to currency depreciation. Conversely, with lower inflation in Switzerland, the Swiss franc is expected to maintain or increase its value relative to the ruble.
In the short-to-medium term, a country with relatively high inflation will see its currency in less demand, which in turn can result in currency depreciation. In the Russian and Swiss case, relative inflation rates suggest that the Swiss franc should appreciate against the ruble. Over time, exchange rates tend to reflect the relative purchasing power of currencies, aligning with the PPP rate. The PPP exchange rate is the rate at which the cost of a basket of goods in one country translates into the same cost in another country when converted through the exchange rate.