Suppose the Spot and Three-Month Forward Rates for the Yen

question 13

Multiple Choice

Suppose the spot and three-month forward rates for the yen are ¥128.79 and ¥133.85, respectively. What is the approximate annual percent difference between the inflation rate in the U.S. and in Japan?

• A)3.93 percent
• B)4.21 percent
• C)4.90 percent
• D)16.67 percent
• E)17.28 percent

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Definitions:

Mercury

A heavy, silvery d-block element that is liquid at room temperature and used in various instruments, with significant environmental and health impacts.

Second Law

In thermodynamics, it states that the total entropy of an isolated system can never decrease over time, and is often associated with the concept of energy degradation.

Thermodynamics

The branch of physics that deals with the relationships between heat and other forms of energy, and how these affect matter, encompassing laws that describe energy conservation and entropy.

Energy Conversion

The process of transforming energy from one form into another, such as converting kinetic energy into electrical energy.