Suppose the value of the Polish zloty moves from Z 1000 = $1 at the start of the year to Z 1,800 at the end of the year. At the same time, the Polish price level changes from an index of 100 on January 1 to 134 on December 3U.S. inflation during the year was If the one-year interest rate on the zloty is 44%, what was the real dollar cost of borrowing the zloty during the year?

Question

Quizplus · Accepted Answer

The real dollar cost of borrowing is the nominal interest rate minus the inflation rate. The nominal interest rate is 44%, and the inflation rate is (134-100)/100 = 34%. Therefore, the real dollar cost of borrowing is 44% - 34% = 10%.

Suppose the Value of the Polish Zloty Moves from Z