Caleb Fajardo and Yen-Dollar Parity. Caleb Fajardo is attempting to determine whether U.S./Japanese financial conditions are at parity. The current spot rate is a flat ¥89.00 = $1.00, while the 360-day forward rate is 84.90 = $1.00. Forecast inflation is 1.103% for Japan, and 5.901% for the United States. The 360-day euroyen deposit rate is 4.696 %, and the 360-day eurodollar deposit rate is 9.495%. a. Diagram and calculate whether international parity conditions hold between Japan and the United States. b. Find the forecasted change in the Japanese yen to U.S. dollar (= $1.00) exchange rate one year from now. a. Diagram and calculate whether international parity conditions hold between Japan and the United States. The forecast difference in rates of inflation is % (U.S. higher than Japan). (Round to one decimal place.)

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Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.