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You are given the following data: 1-year nominal risk free rate in dollar area(IUSD )=5.053%   ...

You are given the following data:

1-year nominal risk free rate in dollar area(IUSD )=5.053%   

1-year nominal risk free rate in JPY area(IJPY )=8.158%

Real risk free rate = 3.5%

Current spot exchange rate: =JPY115.60/USD

(1) How much are the inflation rate in the Dollar area and JPY area respectively according to Fisher Effect?

(2) What is the Inflation rate differential between the two countries?

(3) What is the interest rate differential between the two countries?

(4) How much is the 1-year forward exchange rate according to Interest Rate Parity?

(5) What is the forward premium/discount on JPY?

(6) How much is the expected spot exchange rate in 1-year according to Purchasing Power Parity?

(7) What is the forecast percentage change in the spot rate of JPY?

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Answer is:

jeff jeffy answered 2 years ago
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