A What Has Happened To The Yen Dollar Or Yen Euro Rate Over The Last Month What

a. What has happened to the yen-dollar or yen-euro rate over the last month?

What factors help explain it?

b. U.K. interest rates are 4%, U.S. interest rates are 3%, and the current exchange rate is

$1.60:£1. What should be the 6 month forward rate? The one year ahead forward rate?

c. In response to a 1% increase in inflation, the central bank raises nominal interest rates

by 1%. Use UIP and PPP to work out what should happen to the current spot rate. How

would your answer differ if the central bank raised rates by 2%? Why?

d. How hard is it for you to find information about companies listed on foreign equity

markets? Does this explain the home bias puzzle?

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