Chartered Financial Analyst Level 2

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Explanation:

According to uncovered interest rate parity (UIRP), the expected change in the exchange rate should equal the interest rate differential between the two countries.

Calculation:

Interest rate differential = US rate - Japan rate = 6.25% - 2.25% = 4%
Since the US has higher interest rates, the USD is expected to depreciate against JPY
For JPY/USD (JPY per USD), depreciation means the exchange rate increases

Therefore, the JPY/USD rate is expected to increase by 4% in one year.

Explanation:

According to uncovered interest rate parity (UIRP), the expected change in the exchange rate should equal the interest rate differential between the two countries.

Calculation:

Interest rate differential = US rate - Japan rate = 6.25% - 2.25% = 4%
Since the US has higher interest rates, the USD is expected to depreciate against JPY
For JPY/USD (JPY per USD), depreciation means the exchange rate increases

Therefore, the JPY/USD rate is expected to increase by 4% in one year.

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47 The 1-year deposit rate is 2.25% in Japan and 6.25% in the US. According to the uncovered interest rate parity theory, the JPY/USD rate (amount of JPY per 1 USD) is expected to:

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decrease by 4% in one year.

remain the same.

increase by 4% in one year.