International Macro & Policy Practice problems 1. The 12-month nominal interest rate in the US is 1% (0.01) and the 12-month nominal interest rate in China is 6% (0.06). Inflation in the US is 3.6% (0.036). UIP and PPP hold. (a) Compute the expected depreciation of the RMB relative to the USD over the next 12 months. Use an equation and give a precise number. (b) What will inflation in China be over the next 12 months? Use an equation and give a precise number. () Compute the real interest rate in China and the real interest rate in the U.S. Use an equation and give precise numbers. (d) Does the inflation differential between China and the U.S. tell you something about the loss or gain of competitiveness of one country relative to the other? 2. The 12-month nominal interest rate on the Russia Ruble (RUB) is 11.3% (0.113) and on the US dollar (USD) is 1.1% (0.011). The spot exchange rate is 56.0 RUB per USD. The risk premium on the RUB is 3.5% (0.035). Compute the expected RUB/USD exchange rate 12 months from now