Suppose the current exchange rate for the polish zloty is z 2.85. the expected exchange rate in three years is z 2.93. what is the difference in the annual inflation rates for the united states and poland over this period?

0.93%

Explanation:

Given that,

Current exchange rate for the Polish zloty = Z 2.85

Expected exchange rate in three years = Z 2.93

For determining the difference in the annual inflation rates, we can use relative purchasing power parity method which is as follows:

where,

St is the expected exchange rate = Z 2.93

S0 is the current exchange rate for the Polish zloty = Z 2.85

and,

n = time period = 3 years

By putting these values into the equation, we get

Now,

(inflation Poland - inflation US) =

                                                   = 1.0093 - 1

                                                   = 0.0093 or 0.93%

Therefore, the difference in annual inflation rates  = 0.93%

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