1. Suppose the spot and three-month forward rates for the yen are ¥102.22 and ¥101.17, respectively.
a. Is the yen expected to get stronger or weaker?
Weaker Stronger
b. What would you estimate is the difference between the inflation rates of the United States and Japan? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)
2. Suppose the current exchange rate for the Russian ruble is RUB 37.74. The expected exchange rate in three years is RUB 34.54.
What is the difference in the annual inflation rates for the United States and Russia over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)