Suppose Russia’s inflation rate is 200%

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 between the rubble and the franc at time (t – The same exchange rate at time t-1)/ the exchange rate between the rubble and the franc at time t = 2 – 0.02 =1.98.

So there will be a 198% depreciation of the ruble against the franc or, conversely, a 198% appreciation of the franc against the ruble.