Sample qn - ambiguous answer - can u help? Relative PPP purchase, relative, about

zephyranalyst

Japan 85.45.    1yr  Infl=1.2% Uk.       0.62.       Infl=1.6 US.                     Infl=1.3 According to relative purchase parity, which of the below is accurate? 1) Japan’s will depreciate 2) uk’s will be about the same

Siddimaula

Thanks Alan. the question is from one of the samples’
Japan yen/$ 85.45.    1yr  Infl=1.2%
Uk.￡/$       0.62.       Infl=1.6
US.                     Infl=1.3

According to relative purchase price parity, which of the below is accurate?

1) Japan’s will depreciate
2) uk’s will be about the same

stockjaguar

Thanks Alan. the question is from one of the samples’
Japan yen/$ 85.45.    1yr  Infl=1.2%
Uk.￡/$       0.62.       Infl=1.6
US.                     Infl=1.3

According to relative purchase price parity, which of the below is accurate?

1) Japan’s will depreciate
2) uk’s will be about the same

wizofoz

alanfung86 wrote:
perhaps if you better worded your problem and put the details in a more understandable form, then maybe someone can address your concerns. and what is ‘uk’s will be about the same’ ? CFAI or any study guide will never use ‘will be about the same’ to describe something..it’s either the same or not the same.
I do vaguely recall seeing “about the same” in the CFA sample. It pertains to the question by OP.

liquidity

Thanks preppie … This is from one of the samples.Qn# 45.the answer is 2)…. I gues there is sthg wrong with the question.

Makavelim3

Got you.
1. Japanese yen should apprieciate, so, the first answer is out.
And if I remember correctly, the third answer is also offbase. So, that leaves UK’s being about the same a better choice than the other two.

Benjiko

Right. I somehow thought Jyen depreciates as it becomes 85.03x ..however this means jy appreciates…thanks

king_kong

I am with you on this

bleach

ov25 wrote:
Thanks Alan. the question is from one of the samples’
Japan yen/$ 85.45.    1yr  Infl=1.2%
Uk.￡/$       0.62.       Infl=1.6
US.                     Infl=1.3

According to relative purchase price parity, which of the below is accurate?

1) Japan’s will depreciate
2) uk’s will be about the same



  
Yen expected rate: 85.45 * 1.012 / 1.013 = 85.37 = US$ depreciate, Yen appreciate so answer (1) is wrong
UK expected rate: 0.62 * 1.016 / 1.013 = 0.6218 = about the same as 0.62 thus (2) is correct.

I know the question is not set in the best manner but out of the 3 questions, (2) is most likely correct since the other two is obviously wrong.