1. Suppose the rate of appreciation of the Japanese yen against the Mexican peso, s(t+1, MXN/JPY ) is normal distributed N (0.0624, 0.157²).

Present the probability distribution (the bell curve, also called the density function) for s(t+1, MXN/JPY ) in a figure (see Exhibit 3.3 of the textbook for a similar illustration).

Todays spot rate is S(t, MXN/JPY ) = 0.13648. Then the next periods spot rate, S(t+1, MXN/JPY ) is normal distributed N (, ²). What is equal to and what is equal to? Present the probability distribution (the bell curve also called the density function) for S(t + 1, MXN/JPY ) in a figure. What is the probability that S(t + 1, MXN/JPY ) < 0.1222?

Suppose the interest rate for one period (from t to t + 1) is i_{JP Y} = 2% in Japan and i_MXN = 5% in Mexico. What must the forward rate F (t, MXN/JPY ) then be? Does the Unbiasedness Hypothesis hold in this case?