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Derek Tosh and Yen-Dollar Parity.Derek Tosh is attempting to determine whether US/Japanese financial conditions are...

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Finance

Derek Tosh and Yen-Dollar Parity.Derek Tosh is attempting to determine whether US/Japanese financial conditions are at parity. The current spot rate is a flat

89.00/$, while the 360-day forward rate is 84.90/$. Forecast inflation is 1.099% for Japan, and 5.896% for the US. The 360-day euro-yen deposit rate is 4.703%,

and the 360-day euro-dollar deposit rate is 9.498%.

a. Calculate whether international parity conditions hold between Japan and the United States.

b. Find the forecasted change in the Japanese yen/U.S. dollar (/$) exchange rate one year from now.

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