Suppose that the current spot exchange rate of U.S.dollars for Russian rubles is $0.15/1ruble.The price of Russian-produced goods increases by 8 percent,and the U.S.price index increases by 3 percent.

According to PPP,the 8 percent rise in the price of Russian goods relative to the 3 percent rise in the price of U.S.goods results in a(n)
A)depreciation of the Russian ruble by 5 percent.
B)depreciation of the Russian ruble by 6 percent.
C)appreciation of the Russian ruble by 5 percent.
D)appreciation of the Russian ruble by 6 percent.

Question

Suppose that the current spot exchange rate of U.S.dollars for Russian rubles is $0.15/1ruble.The price of Russian-produced goods increases by 8 percent,and the U.S.price index increases by 3 percent.

According to PPP,the 8 percent rise in the price of Russian goods relative to the 3 percent rise in the price of U.S.goods results in a(n)
A)depreciation of the Russian ruble by 5 percent.
B)depreciation of the Russian ruble by 6 percent.
C)appreciation of the Russian ruble by 5 percent.
D)appreciation of the Russian ruble by 6 percent.

Quizplus · Accepted Answer

According to Purchasing Power Parity (PPP), if the price of Russian goods increases by 8% and U.S. goods by 3%, the ruble should depreciate by the difference, which is 5%.

Suppose That the Current Spot Exchange Rate of U