* Relative Appreciation versus Depreciation of Currencies.

a) Given that the rupee depreciates by 89% against the dollar, calculate the implied appreciation

of the dollar against the rupee. [Ans. = 809%]

b) The US mortgage index declined sharply by 75% at the height of the recent great recession.Compute the percentage increase in the index required to restore it to its previous peak. =300%

c) If the dollar appreciates by 750% against the peso, obtain the implied depreciation of the peso against the dollar. [Ans. = -88.24%]

International Fisher Equation (IFE) or Relative Purchasing Power Parity (PPP) for Multiple Years.

d) Inflation in US is projected to be 3% per year over the next five years while Canadian inflation is projected to be 7% over the same period. If current spot exchange rate C$/$ = 1.2615, obtain the spot rate five years from now if relative PPP holds exactly. [Ans: C$/$= 1.5262]

e) Assume that nominal interest rate in US is projected to be 5% per year over the next five years while Brazilian interest is projected to be 9% per year over the same period. If current spot

exchange rate R/$ = 3.12, obtain the spot rate five years from now if IFE holds exactly. [Ans: R/$ = 3.76]