Suppose Russia's inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%. According to relative PPP, what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?

Question

Quizplus · Accepted Answer

The Answer is (Eᵣᵤblₑ/fᵣₐnc, t - Eᵣᵤblₑ/fᵣₐnc, t₋₁)/Eᵣᵤblₑ/fᵣₐnc, t₋₁ = 2 - 0.02 = 1.98
So there will be a 198% depreciation of the ruble against the franc or, conversely, a 198% appreciation of the franc against the ruble.

Suppose Russia's Inflation Rate Is 200% Over One Year but the Inflation