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.