Exchange rate question its, Recently, question, believes

waldziuchna

From schweser:
could someone explain please?
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George Gao, CFA, is a currency portfolio manager who believes that the asset market approach can be applied to make short run forecasts of exchange rates based on the long-term effects of the changes in a country’s money supply. Recently, Japan unexpectedly reduced its money supply by 5%, increasing interest rates from 1.5% to 2.0%. Japan’s current spot rate is 108.74 Japanese yen per United States dollar (JY/USD). George believes that it will take two years for the effects of the decrease in the money supply to reduce the inflation rate in Japan. The current interest rate in the U.S. is 1.5%. Based on George’s calculations, the decrease in the money supply will translate to an immediate spot exchange rate of:
A) 115.59 JY/USD.
B) 102.29 JY/USD.
C) 103.30 JY/USD.

marsilni

2008 stuff. Leave it