The current spot exchange rate between the Japanese yen and the US dollar is 113.25 Y/US$.The yen is expected to appreciate by 4% against the dollar over the next year.What do you expect the spot exchange rate between the yen and the dollar to be one year from now?

Question

Quizplus · Accepted Answer

4% appreciation of yen means that 1 Yen will be equivalent to (1+0.04) or 1.04 US dollars. Therefore, the yen-dollar exchange rate would be 1/1.04 Y/$ or approximately 0.9615 Y/$. Multiplying with the current rate of 113.25 Y/$ gives us a future spot exchange rate of 108.89 Y/$.

The Current Spot Exchange Rate Between the Japanese Yen and the US