Exchange Rate Relationships. Look at Table 6.5.

a. How many Japanese yen do you get for your dollar?

b. What is the 1-year forward rate for the yen?

c. Is the yen at a forward discount or premium on the dollar?

d. Calculate the annual percentage discount or premium on the yen.

e. If the interest rate on dollars is 6.5 percent, what do you think is the interest rate on yen?

f. According to the expectations theory, what is the expected spot rate for the yen in 1 year’s time?

g. According to purchasing power parity, what is the expected difference in the rate of price inflation in the United States and Japan?