36 Currency interest rates. The ‘Market’ section of the Bloomberg website provides interest rate quotations for numerous currencies. Its address is http://

www.bloomberg.com.

a Go to the ‘Markets’ section and then to ‘International Yield Curves’. Determine the prevailing one-year interest rate of the Australian dollar, the Japanese yen, and the British pound. Assuming a 2% real rate of interest for savers in any country, determine the expected rate of inflation over the next year in each of these countries that is implied by the nominal interest rate (according to the Fisher effect).

b What is the approximate expected percentage change in the value of each of these currencies against the dollar over the next year, when applying PPP to the inflation level of each of these currencies versus the dollar?