Question 21.4: It’s All Relative Suppose the Japanese exchange rate is c...

Fundamentals of Corporate Finance Standard Edition

It’s All Relative

Suppose the Japanese exchange rate is currently 105 yen per dollar. The infl ation rate in Japan over the next three years will run, say, 2 percent per year, whereas the U.S. inflation rate will be 6 percent. Based on relative PPP, what will the exchange rate be in three years?

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