Suppose the U.S. has higher inflation than Japan. The U.S. is in the late expansion phase of the business cycle and Japan is in the initial recovery phase. Using only the PPP relationship for forecasting currency values and using the relationship between asset class returns and the business cycle, which asset should the manager invest in?
Answer and Explanation
The PPP relationship states that countries with high inflation will see their currency depreciate, so the manager should invest in Japan. Within Japan, the investor should invest in stocks because stock prices have just started to rise and will continue to do so for some time. Bond yields will soon rise and their prices will fall as the economy expands.
| 
发表于 2008-9-12 15:35
| 
