Question

The exchange rate at the beginning of a year between the Indian Rupee (R) and the U.S. dollar is R43.125/$. The annual inflation rates in India and in the United States are 19 percent and 3 percent respectively. What would be the new exchange rate at the end of the year? R37.327/$ R0.0267/$ R49.8224/$ $37.327/R

Answer 1

The correct answer is R49.8224/$.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Exchange rate at beginning = R43.125/$

Inflation rate in India = 19%

Inflation rate in U.S. = 3 %

So, we can calculate the New exchange rate by using following formula:

New exchange rate = Beginning exchange rate × (Inflation A ÷ Inflation B)

= R 43.125 × (1.19 ÷ 1.03)

= R 49.8224/$