The rate of inflation in USA is likely to be 3% per annum and in India it is likely to be 6.5%. The current spot rate of US $ in India is ₹68.40. Find the expected rate of US $ in India after 1 year and 3 years from now

According to Purchasing Power Parity: Forward rate = Spot rate * [(1 + r H ) / (1 + r F )] t Where: r H = Home country inflation rate (India) = 6.5% = 0.065 r F = Foreign country inflation rate (USA) = 3% = 0.03 Spot rate = ₹68.40 So, Spot rate after one year (t=1): = ₹68.40 * [(1 + 0.065) / (1 + 0.03)] 1 = ₹68.40 * [1.065 / 1.03] = ₹68.40 * 1.03398 = ₹70.72 After 3 years (t=3): = ₹68.40 * [(1 + 0.065) / (1 + 0.03)] 3 = ₹68.40 * (1.03398) 3 = ₹68.40 * 1.1054 = ₹75.61