Question 5You are given the following information by Apple PLCSpot Exchange Rate ($

Question 5

You are given the following information by Apple PLC

Spot Exchange Rate ($

/ ¥) $1.00 / ¥100.00

USA Interest Rate 7.5%

Japan Interest Rate 2%

USA Inflation Rate 4%

Japan Inflation Rate 1%

a) Using the interest rate parity theory, determine:

i. Whether the $ will appreciate or depreciate

ii. The new $ / ¥ exchange rate after depreciation or appreciation

b) Briefly explain whether at equilibrium, investing in Japan will generate more profit for a US

investor than investing in the US.

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