In March 1997 the exchange rate for the Indonesian rupiah was R 2,419  $1. Inflation in the year to March 1998 was about 30% in Indonesia and 2% in the United States.

a. If purchasing power parity held, what should have been the nominal exchange rate in March 1998?

b. The actual exchange rate in March 1998 (in the middle of the Asian currency crisis) was R 8,325  $1. What was the change in the real exchange rate?

AppendixLO1