Calculate the forward premium on foreign currency

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Reference no: EM131991951

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 1.0971% for Japan, and 5.895% for the US. The 360-day euro-yen deposit rate is 4.702%, and the 360-day euro-dollar deposit rate is 9.504%.

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

Calculate the forecast difference in rates of inflation is..........% (U.S. higher than Japan). (Round to one decimal place.)

Calculate the difference in nominal interest rates.......%

Calculate the forward premium on foreign currency......%

Calculate the forecast change in spot exchange rate........%

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

Reference no: EM131991951

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