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
2.32.3%
per year (which is projected to continue). Assume the present exchange rate is
66
units of X per U.S. dollar.
a. What is the estimated exchange rate two years from now?
b. If, instead, currency X was devaluing at the same rate
(2.32.3%
per year) relative to the U.S. dollar, what would be the exchange rate three years from now?