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Suppose the expected annual rate of inflation for the coming year is 2% for the US and 3% for Japan. The current spot exchange rate
Suppose the expected annual rate of inflation for the coming year is 2% for the US and 3% for Japan. The current spot exchange rate is $:yen=110.43. The one-year interest rate is 4% in the US. Using the precise form of the international parity relations, compute the one-year interest rate in Japan, the expected yen to dollar exchange rate in one year, and the one-year forward exchange rate.
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