Real Interest Rates, Expected Inflation, IRP, and the Spot Rate

Subject: Business    / Finance
Question

19. Real Interest Rates, Expected Inflation, IRP, and the Spot Rate. The U.S. and the country

of Rueland have the same real interest rate of 3%. The expected inflation over the next year is 6

percent in the U.S. versus 21% in Rueland. Interest rate parity exists. The one-year currency futures

contract on Rueland’s currency (called the ru) is priced at $.40 per ru. What is the spot rate of the ru?