Question

Problem 21-8 Inflation and Exchange Rates [LO2] Suppose the current exchange rate for the Polish zloty is Z 2.93. The expected exchange rate in three years is Z 3.01. What is the difference in the annual inflation rates for the United States and Poland over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Difference in annual inflation rates

Answer 1

Current exchange rate for Polish Zioty = Z 2.93/ US dollars

Expected exchange rate in 3 years for Polish Zioty = Z 3.01/ US Dollars

Thus rate of depreciation of Polish Zioty in 3 years

= ( 3.01 – 2.93)/ 2.93 x 100

= 0.08/2.93 x 100

= 2.73%

That would mean Rate of inflation of Polish zioty( in Poland ) is relatively higher by 2.73% over rate of inflation of US dollars ( In United states ) .

DIFFERENCE IN ANNUAL INFLATION RATE = 2.73 %