AvtoVAZ of Russia's Kalina Export Pricing Analysis. AvtoVAZ OAO, a leading auto manufacturer in Russia, was launching a new automobile model in 2001, and is in the midst of completing a complete pricing analysis of the car for sales in Russia and export. The new car, the Kalina, would be initially priced at Rubles 260,000 in Russia and if exported, $8,666.67 in U.S. dollars at the current spot rate of Rubles 3030= $1.00. AvtoVaz intends to raise the price domestically with the rate of Russian inflation over time, but is worried about how that compares to the export price given U.S. dollar inflation and the future exchange rate. Use the datatable, to answer the pricing analysis questions.

Calendar Year	2001	2002	2003	2004	2005	2006
Kalina Price (rubles)	260,000
Russian Inflation (forecast)		13.8%	12.1%	10.9%	8.1%	8.1%
U.S. inflation (forecast)		2.5%	2.8%	2.8%	2.8%	2.8%
Exchange rate (rubles=USD 1.00)	30

a. If the domestic price of the Kalina increases with the rate of inflation, what would be its price over the 2002-2006 period?

b. Assuming that the forecasts of U.S. and Russian inflation prove accurate, what would be the value of the ruble over the coming years if its value versus the dollar followed purchasing power parity?

c. If the export price of the Kalina were set using the purchasing power parity forecast of the ruble-dollar exchange rate, what would be the export price over the2002-2006 period?

d. How would the Kalina's export price evolve over time if it followed Russian inflation and the exchange rate of the ruble versus the dollar remained relatively constant over this period of time?

e. Vlad, one of the newly hired pricing strategists, believes that prices of automobiles in both domestic and export markets will both increase with the rate of inflation, and that the ruble-dollar exchange rate will remain fixed. What would this imply or forecast for the future export price of the Kalina?

f. If you were AvtoVaz, what would you hope would happen to the ruble's value versus the dollar over time given your desire to export the Kalina? Now if you combined that "hope" with some assumptions about the competitionlong dashother automobile sales prices in dollar markets over timelong dashhow might your strategy evolve?

g. So what did the Russian ruble end up doing over the 2001-2006 period?