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AlexFokin [52]
3 years ago
15

4.The inflation rate in the U.S. is 3%, while the inflation rate in Japan is 1.5%. The current exchange rate is $1 equal to 105

Japanese yen. If purchasing power parity condition is existed, what is the new exchange rate for the yen?
Business
1 answer:
Nana76 [90]3 years ago
5 0

Answer:

103.4709          

Explanation:

The computation is shown below:

Given that

U.S inflation rate = 3%

Japan inflation rate = 1.5%

Current exchange rate = 105

Now the new exchange rate for the yen is

= Current exchange rate × (1 + Japan inflation rate) ÷ (1 + U.S inflation rate)

= 105 × (1 + 1.5%) ÷ (1 + 3%)

= 105 × (1.015 ÷ 1.03)

= 105 × 0.985436893

= 103.4709          

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