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CMA Final · Strategic Financial Management · The International Financial Environment

A firm expects ₹ inflation of 5% and US inflation of 3%. Spot is ₹82.00/USD. By relative PPP, the expected spot after one year is:

Relative PPP gives expected spot as current spot multiplied by (1.05/1.03). So 82 × 1.05 / 1.03 equals about ₹83.59 per USD, reflecting higher Indian inflation and a weaker rupee.

  1. A₹83.59Correct
  2. B₹82.00
  3. C₹80.43
  4. D₹84.46

Explanation

Expected spot = 82 × 1.05/1.03 = 86.10/1.03 = ₹83.59. Option ₹80.43 inverts the ratio. Option ₹84.46 multiplies by 1.03 only.

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