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Suppose inflation rates in the USA and Australia are expected to be 3% and 5.5%, respectively. If the spot rate is AUD 1.331=USD 1 and

Suppose inflation rates in the USA and Australia are expected to be 3% and 5.5%, respectively. If the spot rate is AUD 1.331=USD 1 and exchange rate one year later changes to AUD 1.315 =USD 1, what is the real currency value change of the AUD in terms of USD?

Answers:

A.Appreciation by 3.67%

B.Appreciation by 1.22%

C.Depreciation by 3.67%

D.Depreciation by 1.22%

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