Forward rates.The Wall Street Journallists forward rates for Japanese Yen. Say that the current listings are as follows:

1-month

forward rate (indirect) 104.23

3-month

forward rate (indirect) 103.66

6-month

forward rate (indirect) 102.77First, is the anticipated inflation rate higher or lower in Japan compared with that in the United States? Second, if the current indirect rate is

104.41,

what do the

6-month

rate and the current rate imply about the relative difference in the anticipated annual inflation rates? Finally, using the current indirect rate and the

6-month

forward rate, determine the annual anticipated inflation rates for Japan if the anticipated U.S. inflation rate is

5.06%.

Question content area bottom

Part 1

First, is the anticipated inflation rate higher or lower in Japan compared with that in the United States?(Select the best response.)

A.

The anticipated inflation rate is higher in Japan than in the U.S.

B.

The anticipated inflation rate is the same in Japan and in the U.S.

C.

The anticipated inflation rate is lower in Japan than in the U.S.

Your answer is correct.

Part 2

Second, if the current indirect rate is

104.41,

what do the

6-month

rate and the current rate imply about the relative difference in the anticipated annual inflation rates?(Select the best response.)

A.inf Subscript f equals negative 0.03117 plus 0.96883 times inf Subscript h

inff =0.03117+0.96883infh

B.inf Subscript f equals 0.96883 negative 0.03117 times inf Subscript h

inff =0.968830.03117infh

C.inf Subscript h equals negative 0.03117 plus 0.96883 times inf Subscript f

infh =0.03117+0.96883inff

D.inf Subscript h equals 0.96883 negative 0.03117 times inf Subscript f