The Japanese yen-euro cross rate is one of the more significant currency values for global trade and commerce. The graphic at right shows this cross-rate from when the euro was launched in January 1999 through the end-of-year 2010. 

Monthly Average Exchange Rates: Japanese Yen per European Euro

Source: PACIFIC Exchange Rates © 2010 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.

i) Estimate the change in the value of the yen over the following three periods of change.

Change in the Starting Value Ending Value value of the yen

Time Period (¥/€) (¥/€) (percent)

a. Sep 2001 - June 2008 108 166

b. July 2008 - Dec 2010 169 110

ii) Assume that the one-year interest rate in Germany (euro) is 3 percent and the one-year forward rate interest rate in Japan is 7 percent. Assume interest parity holds for a one-year horizon. The sport rate of the German euro is $0.50.

a) If forward rate is used to forecast Japanese yen sport rate in one year.

b) Realized value of the Japanese yen is $ 1.40, calculate forecast error.

170 MA 160 190 140 130 120 110 100 00 02 04 06 08 10