Ass 10 - Assignment 10 Anastasiya Zamula a What is the nominal interest rate in each country a The nominal interest rate is the sum of the real interest

Ass 10 - Assignment 10 Anastasiya Zamula a What is the...

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Assignment 10 Anastasiya Zamula a. What is the nominal interest rate in each country? a. The nominal interest rate is the sum of the real interest rate and expected inflation. For the U.S., this rate is 13 percent (3+10). For Japan, this rate is 8 percent (3+5). b. What are the expected changes in the real and nominal exchange rates? b. Differences in inflation rates will lead to expected changes in the nominal exchange rate. The Yen/$ rate should decrease by the differential in expected inflation, which is 5percent (5-10). The real exchange rate is not expected to change unless there is a fundamental change to savings, investment, or demand for net exports. c.If the Federal Reserve increases the money supply and inflation expectations rose to 12percent in the U.S.,
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