a. Between 2009 and 2010 the Japanese Yen (JPY) exchange rate with the US Dollar (USD) went from JPY101.24/USD to JPY86.12/USD. During the same period the consumer price index in Japan decreased from 102.10 to 101 (base 2005=100) and the consumer price index in the US increased from 107.32 to 112.56 (base 2005=100). Think of the indices as the price of a representative bundle of goods. What is the exchange rate that satisfies the Relative Purchasing Power Parity condition during this period? Explain the intuition behind your answer. [10 marks] b. Calculate the real exchange rate between the Yen and the US dollar in 2009 and in 2010. Draw a graph representing both nominal and real exchange rates in the two years. [6 marks] c. Discuss the intuition behind the real exchange rate and whether the currencies were overvalued or undervalued in each period. How does the real exchange rate relate to the Purchasing Power Parity conditions? (8 marks) d. In 2009 the Japanese nominal interest rate was 1.65% and the US nominal interest rate was 5.65%. If the fundamental equilibrium conditions in international finance hold, what should be the forward rate? Explain. [3 marks] e. Using these nominal interest rates and the data in part a., explain the international Fisher condition and discuss whether it holds in this case. [3 marks] f. What are the assumptions on which the fundamental equilibrium conditions in international finance are based