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Suppose Japanese yen money market annual rate is .60% and U.S. money market has an annual rate of 4.50%. a) The predictions on the spot

Suppose Japanese yen money market annual rate is .60% and U.S. money market has an annual rate of 4.50%.

a) The predictions on the spot rate in 6 months made by financial analysts X and Y are 116/$ and 114/$ respectively. If the spot rate today is 115/$, which prediction do you think is more reasonable, why?

b) What should be the spot rate in 6 months based on parity condition? (Please show steps of reasoning and computation)

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