The expected inflation rate for USA over the next year is 2.7%. The expected inflation

rate in Japan is 1.1% (i.e., deflation is expected). The current exchange rate is

$0.0121976 / and the one-year risk-free rate of interest in the USA is 5.7135%.

a.

What does the relative PPP imply? Show numbers.

b.

What does the Fisher effect imply? Show numbers.

c.

Assuming relative PPP and the Fisher effect hold, what does Interest Rate Parity

imply? Show numbers and formulas