Question: interest rate parity. I need step by step solution please. thank you. Today, the exchange rate between US dollar and the Japanese Yen, Eo, is

interest rate parity. I need step by step solution please. thank you.

Today, the exchange rate between US dollar and the Japanese Yen, Eo, is Y 100/S. Interest rate in the U.S. is 5% per year and the interest rate in Japan is 3% per year. What is the expected exchange rate one year from now between the two currencies, so that investors will be indifferent between investments home and abroad? Invest SI in the US: Or invest Yen 100 in Japan: If you are indifferent between two investments, the expected exchange rate at t=1 is The rate of appreciation of the Japanese Yen is approximately

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