Problem 2 Figure 32 (textbook): Interest rates on the dollar and yen deposits, 23 19 14 ' Dollar rate 9 'I 4 \\1. Yen rate .. J '54 _ . _ .4. 1 1923 1990 1902 1984 1986 1993 1990 1992 1994 1990 1998 2000 2002 2004 2009 2003 2010 2012 2014 2019 From Figure 3-2 (KOM textbook), which is shown above, Japan's short term interest rates have had periods during which they are near or equal to zero from 1998 to 2006 and 2010 to 2015. a. Is the fact that the yen interest rates shown never drop below zero a coincidence or can you think of some reason why interest rates may be bounded below by zero? I). Re-draw Figure 4-6 for the Japanese case during most of 2001-2005 and 2010 to 2016 when the yen rate was almost zero (assume R=0 in the diagram). Assuming uncovered interest parity (UIP) condition holds, find an expression of the exchange rate E. Using the equation you derived, what factors affect the exchange rate