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Inessa05 [86]
3 years ago
12

Suppose the spot and three-month forward rates for the yen are ¥102.21 and ¥101.18, respectively.a. Is the yen expected to get s

tronger or weaker?b. What would you estimate is the difference between the inflation rates of the United States and Japan? (A negative answer should be indicated by a minus sign.
Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)
Business
1 answer:
tresset_1 [31]3 years ago
3 0

Answer:

a.

The yen is expected to get stronger in three-month time.

It is because it is taking up to ¥102.21 to exchange for $1 at spot, while in three-month time, it is expected that it will only take ¥101.18 to exchange for $1.

b.

Applying relative purchasing power parity, we have:

USD is expected to depreciate 3% against Japan Yen, calculated as: 102.21 / 101.18 - 1 = 3%.

Thus, inflation rates of the United States is estimated to be 3% higher than inflation rates of the Japan.

Explanation:

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