Suppose the current exchange rate for the Polish zloty is Z 2.92. The expected exchange rate in three years is Z 3.00. What is the difference in the annual inflation rates for the United States and Poland over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Question

Dale Anderson

Business

Today, 09:21

Suppose the current exchange rate for the Polish zloty is Z 2.92. The expected exchange rate in three years is Z 3.00. What is the difference in the annual inflation rates for the United States and Poland over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Answers (1)

Know the Answer?

Slade Leach · Answer 1

The answer is 91% or Supposed to be 0.00905

Explanation:

We can use the relative purchasing power parity equation:

Ft = S0 * [1 + (hFC - hUS) ]t

We can find:

Z 3.00 = Z 2.92 [1 + (hFC - hUS) ]3

hFC - hUS = (Z 3.00/Z 2.92) 1/3 - 1

hFC - hUS =.00905

The Inflation in Poland is expected to exceed that in the U. S. by 91% over this period.