Calculating an Expected Future Exchange Rate
A U.S.-based investor anticipates that the Japanese yen will decrease in value by 3% relative to the U.S. dollar over the coming year. If the current exchange rate is 150 yen per U.S. dollar, what is the expected exchange rate one year from now? Explain the reasoning behind your calculation.
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Numerical Example of Expected Currency Depreciation (δ^E = 2.5%)
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Contrasting Investment Outlooks
Calculating an Expected Future Exchange Rate
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An investor based in the United States is considering an investment in Japan. The current exchange rate is 150 Japanese yen per U.S. dollar. The investor's forecast is that in one year, the exchange rate will be 153 Japanese yen per U.S. dollar. Based on this forecast, what can be concluded about the expected rate of foreign currency depreciation (δ^E) from the U.S. investor's perspective?
Investor Reaction to Economic News