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

Question

Quizplus · Accepted Answer

To find the new exchange rate at the end of the year, we need to adjust for the inflation rates in both countries.

For India, the new exchange rate would be:

R43.125 x (1 + 19%) = R51.39375/$

For the US, the new exchange rate would be:

$1/43.125 x (1 + 3%) = $0.0239291/R

Now we can convert the two new exchange rates to a common currency, either Rupee or Dollar:

R51.39375/$ x $0.0239291/R = R1.2319604/$

This means that at the end of the year, you would get more Rupees for every dollar compared to the beginning of the year.

To get the final answer, we need to round off to the nearest cent:

R1.2319604/$ ≈ R1.23196/$ ≈ R49.8224/$ (rounded to 4 decimal places)

Therefore, the correct answer is A) R49.8224/$.

The Exchange Rate at the Beginning of a Year Between