Exercise 9 Suppose that the Russian economy maintains trade relations only with countries in the Eurozone and China, and that 80% of Russian trade is with the Eurozone and the remaining 20% with China. Suppose also that the following data for 2012 and 2013 is true:

2012 2013 Exchange rate ₱/h 24.30 24.00 Exchange rate ₱/f 4.90 5.20 Price index in Russia 100 107 Price index in Eurozone 100 102 Price index in China 100 103

a. What was the depreciation/appreciation of the ruble (₱) with respect to the euro (h), in real terms, between 2012 and 2013? And of the ruble (₱) with respect to the yuan?

b. Is purchasing power parity, in its absolute version, true for Russia, the United States, and China? And the purchasing power parity in its relative version?

c. Calculate the real effective exchange rate for Russia in 2012 and 2013. What was the depreciation/appreciation of the real effective exchange rate between 2012 and 2013?

d. Assume the uncovered interest rate parity is valid, that the exchange rates observed in 2013 correspond to expectations formed in 2012, and that the fixed income assets in each country are denominated in their own currency. What should be the respected relation of the nominal interest rate between Russia, the Eurozone, and China for assets with similar characteristics?