Suppose the current spot rate in New York is .0107 dollars per yen.Inflation for the coming year in the United States is expected to be 5%,while inflation for the coming year is Japan is expected to be only 2%.Using the purchasing power parity theory,what is the expected spot rate at the end of the year should be

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The expected spot rate at the end of the year should be .0110147 dollars per yen. This is because the purchasing power parity theory states that the exchange rate between two currencies should be equal to the ratio of the price levels in the two countries. In this case, the inflation rate in the United States is expected to be 5%, while the inflation rate in Japan is expected to be only 2%. This means that the price level in the United States is expected to increase by 5% relative to the price level in Japan. As a result, the exchange rate between the dollar and the yen is expected to adjust so that the dollar will be worth more yen than it is today.

Suppose the Current Spot Rate in New York Is