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You are expecting the inflation rates in Australia and Japan over the next year to be 3.5% and 1.1%, respectively. The spot rate at the
You are expecting the inflation rates in Australia and Japan over the next year to be 3.5% and 1.1%, respectively. The spot rate at the moment is 70 yen per AUD and the one-year forward rate is 67 JPY per AUD. Assume that the purchasing power parity (PPP) exists. If you have to pay 3 million yen to your supplier in one year, should you buy a one-year forward contract today on 3 million yen? Show all the workings and justify your(use up to 3 decimal places).
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