The HFS Trustees have decided to invest in international equity markets and have hired Jacob Hind, a specialist manager, to implement this decision. He has recommended that an unhedged equities position be taken in Japan, providing the following comment and data to support his views:
Appreciation of a foreign currency increases the returns to a U.S. dollar investor. Because appreciation of the yen from 100¥/$ to 98¥/$ is expected, the Japanese stock position should not be hedged.

Assume that the investment horizon is one year and that there are no costs associated with currency hedging. State and justify whether Hind's recommendation should be followed. Show any calculations.

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Market Rates and Hind's Expectations Spot rate (direct quote) Hind's 12-month currency forecast One-year Eurocurrency rate (% per annum) Hind's 1-year inflation forecast (% per annum) United States n/a n/a 6.00 3.00 Japan 100 98 0.80 0.50