6. Spot versus Forward Rates Suppose the spot and three-month forward rates for the yen are 114.37 and 113.89, respectively.

a. Is the yen expected to get stronger or weaker?( Respond)

b. What would you estimate is the difference between the inflation rates of the United States and Japan?= -1.67%

7. Expected Spot Rates

Suppose the spot exchange rate for the Hungarian forint is HUF 308.27. Interest rates in the United States are 2.6 percent per year. They are 4.5 percent in Hungary.

a. What do you predict the exchange rate will be in one year?

b. In two years?

c. In five years? What relationship are you using?

8. Purchasing Power Parity and Exchange Rates According to purchasing power parity, if a Big Mac sells for $4.89 in the United States and krona 42.50 in Iceland, what is the krona/$ exchange rate?