Suppose that the real interest rate in Japan and the U.S. is 2.00%. Furthermore, assume that the nominal (1-year) interest rate in Japan is 11.00% while the nominal interest rate over the same time period in the United States is 8.00%. According to the international Fisher effect theory, the expected inflation rate in Japan is %. % while the expected inflation rate in the U.S.

Suppose that the real interest rate in Japan and the U.S. is 2.00%. Furthermore, assume that the nominal (1-year) interest rate in Japan is 11.00% while the nominal interest rate over the same time period in the United States is 8.00%. According to the international Fisher effect theory, the expected inflation rate in Japan is %. % while the expected inflation rate in the U.S.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that 90-day U.S. securities have a 3.5% annualized interest rate, whereas90-day Canadian securities have a 4% annualized interest rate. In the spot market,1 U.S. dollar can be exchanged for 1.4 Canadian dollars. If interest rate parity holds,what is the 90-day forward exchange rate between U.S. and Canadian dollars?
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