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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.
E. depreciation of the Russian ruble by 7 percent.
Answer
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