khmonkey4858 khmonkey4858

07-01-2020
Business

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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 stronger 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)

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hoangkhangpham94 hoangkhangpham94

08-01-2020

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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