QUESTION 9 An Australia-based fixed-income investment manager is deciding how to allocate her portfolio between Australia and Japan. (As before the AUD is the domestic currency.) Australia's one-year deposit rate is 5%, considerably higher than Japan's at 14, but the Australian dollar is estimated to be roughly 10% overvalued relative to the Japanese yen based on purchasing power party. Before making her allocation, the investment manager considers the implications of interest rate differentials and PPP imbalances. All else equal, which of the following events would restore the Australian dollar to its PPP value? O The Japanese inflation rate increases by 4%. The Australian inflation rate decreases by 10%. The JPVIAUD exchange rate declines by 10% The Japanese inflation rate increases by 12%