II. SHORT PROBLEM. marking either "a" or "b". Assume the exchange rate for the Japanese yen is currently 110 Yen = 1 U.S. dollar (right-column exchange rate). This is expected to change to 100 Yen = 1 U.S. dollar over the next 180 days, as reflected by the forward rate.

34. Is the yen expected to weaken or strengthen over the next 180 days, relative to the U.S. dollar?

a. Weaken b. Strengthen

35. Based on the Relative Purchasing Power Parity, would you expect the inflation rate to move higher or lower in Japan over the 180 days, relative to inflation in the U.S.?

a. Higher b. Lower

36. Based on the Interest Rate Parity, would you expect nominal interest rates to increase or decrease in Japan, relative to those in the U.S., over the next six months?

a. Increase b. Decrease

37. Over the next 180 days, would you expect imports from Japan into the U.S. to become cheaper or more expensive for U.S. buyers?

a. Cheaper b. More expensive

38. Over the next 180 days, would the U.S. dollar be selling at a premium or discount relative to the yen?

a. Premium b. Discount