1-year nominal risk free rate in dollar area: 5.06%

1-year nominal risk free rate in JPY area: 7.12%

Real risk free rate is 3%.

1. What is the expected inflation rate in US and Japan?

a. 2%; 3%

b. 2%; 4%

c. 3%; 2%

d. 3%; 4%.

2. What is the interest rate differential and inflation rate differential between US and Japan respectively?

a. 0.0192; 0.0196;

b. 0.0192; 0.0192;

c. 0.0243; 0.0257;

d. 0.0257; 0.0257;