Question: Japanese/United States Parity Conditions. Derek Tosh is attempting to determine whether U.S./ 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 1.100% for Japan, and 5.900% for the United States. The 360- day euroyen deposit rate is 4.700%, and the 360-day eurodollar deposit rate is 9.500%.
a. Diagram and 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.