1)i) Use the following information to answer the next two questions.

A Japanese investor notices the expected one year inflation rate in Japan and Mexico is 7% and 5%, respectively. The current spot rates for yen and pesos are as follows:

$.14/MP, JY100/$What should be the value of pesos in terms of yen at the end of the year according to relative PPP? a).0728 b)13.3783 c).0701 d)14.266

ii)Suppose the spot rate at the end of the year is MP.065/JY. Has the yen appreciated or depreciated in real terms?a) appreciated b) depreciated c) neither d) insufficient info

iii)Assume a two-country world: Country A and Country B. Which of the following is as related to these two countries?

a) If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken in real terms according to relative PPP.
b)If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken in nominal terms according to relative PPP .
c)If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will strenghten in real terms according to relative PPP .
d)If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will strenghten in nominal terms according to relative PPP .

iV)A Canadian citizen observes that one year interest rates in Canada and Mexico are 12% and 8%, respectively. The current quotes for Canadian dollars and pesos are 1MP=.10USD and 1CD=1.05USD. What should be the value of pesos in terms of Canadian dollars according to the international Fisher effect?

a)10.1254

b).0988

c).0918

d)10.8887