Question: Suppose the spot rate ends the year exactly where it began at S0/$ = S1/$ = 100/$. Inflation in Japan was 2% during the year.

Suppose the spot rate ends the year exactly where it began at S0¥/$ = S1¥/$ = ¥100/$. Inflation in Japan was 2% during the year. Inflation in the U.S. was 3%. Calculate the percentage change in the real x¥/$. What does this change indicate?

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