Question

Suppose Russia's inflation rate is L OO percent over one year but the inflation rate in Switzerland is only 5 percent. According to relative PPP, what should happen over the year to the Swiss franc's exchange rate against the Russian ruble

Answer 1

the franc would appreciate by 95% against ruble or in other words,exchange rate of franc ruble would depreciate 95% given 100% inflation in russia and 5% in switzerland

Step-by-step explanation:

Give that

Inflation rate in russia = 100%

And inflation rate in switzerland = 5%

The difference in inflation = 100% - 5%

= 95%

The ppp says ruby would depreciate by 95% against the franc

So under purchasing power parity, exchange rate of franc /ruble would depreciate 95% given 100% inflation in russia and 5% in switzerland.

Or we say franc appreciates by 95% against ruble