Please JUST answer C D E for this question, i am putting a and b for complete sense Assume that the U.S. interest rate on 1-year deposits is 2% and the Japanese interest rate on 1-year deposits is 2%. i.e. R_$= R= 0.02. The expected exchange rate between the yen and the USD one year from now is E^e_/$ = 115.70.

a. If FX markets are in equilibrium (i.e. UIP holds), what is the current spot exchange rate of yen per dollars(E_/$)?

b. Suppose starting from that initial equilibrium, the Bank of Japan (BoJ) temporarily raises the interest rate from 2% to 3% (assume exchange rate expectations remain constant). How does this affect the equilibrium yen per dollar spot rate? Calculate the new yen per dollars spot rate. Show your results graphically using a diagram that shows that uncovered interest parity holds.

c. Suppose that from the initial equilibrium calculated in part a, the Bank of Japan permanently increases the money supply so the Japanese interest rate falls from 2% to 1% in the short run and foreign exchange traders revise their forecast of the exchange rate one year from now to E^e_/$ = 118.00. Also, assume prices are fixed in the short run but adjust in the long run (i.e. in one year prices adjust to their new long run equilibrium) and that output is fixed and determined on the real side of the economy by factor inputs and technology.

Requirement: 1/calculate the short run equilibrium yen per dollar spot rate. 2/ Show the short run effects graphically using a combined money market/foreign exchange equilibrium diagram. 3/ Describe what happens. Does exchange rate overshooting occur?

d. What happens to the Japanese interest rate in the long-run and why? Calculate the long run equilibrium yen per dollar spot rate after prices adjust. Show the long run results graphically using a combined money market/foreign exchange equilibrium diagram

e. Why is the spot exchange rate you calculated in c. different from the spot exchange rate in b.?