International project appraisal – part 2 Technical article ACCA

Hello sir! I attempted the question in the second technical article and again got one thing wrong in my answer it is mentioned that “Economic forecasters believe that the mid-point spot exchange rate on 1 January 2014 will be €0.7810/$. The Ayjain Central Bank expects the dollar to devalue at a rate of 5% pa.”
My thoughts from this were that If one dollar is worth 0.7810 euros and dollar is devaluing at the rate of 5% per year then in one years’ time 0.7810 euros should equal to 1.05 dollars rather than one dollar and that should give us 0.7438 But in the article the writer just decreased the 0.7810 by 0.5% which equals to 0.7420 now I understand why they did it but the first one made more sense to me. Even though it is a very small change the answer was a lot different due to this. Can you please explain which approach should i use in the exam and if my understanding was wrong. Thank u