An international corporation located in Country A is considering a project in the United States. The currency in Country A, say X, has been strengthening relative to the U.S. dollar; specifically, the average devaluation of the U.S. dollar has been 2.6% per year (which is projected to continue). Assume the present exchange rate is 6.4 units of X per U.S. dollar. (a)What is the estimated exchange rate two years from now, and (b) if, instead, currency X was devaluing at the same rate (2.6% per year) relative to the U.S. dollar, what would be the exchange rate three years from now?

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An international corporation located in Country A is considering a project in the United States. The currency in Country A, say X, has been strengthening relative to the U.S. dollar; specifically, the average devaluation of the U.S. dollar has been 2.6% per year (which is projected to continue). Assume the present exchange rate is 6.4 units of X per U.S. dollar. (a)What is the estimated exchange rate two years from now, and (b) if, instead, currency X was devaluing at the same rate (2.6% per year) relative to the U.S. dollar, what would be the exchange rate three years from now?

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