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Q. Suppose Russia's inflation rate is 200% over one year, but the inflation rate in Switzerland is only 2%. According to relative PPP, what should happen over the year to the Swiss franc's exchange rate against the Russian ruble?
Answer: The exchange rate among the rubble and the franc at time t - The same exchange rate at time t-1 the exchange rate among the rubble and the franc at time t = 2 - 0.02 =1.98.
Thus there will be a 198% depreciation of the ruble alongside the franc otherwise, conversely a198% appreciation of the franc against the ruble.
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