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exchange rate of the U.S. dollar to the Japanese yen

Examine the exchange rate of the U.S. dollar to the Japanese yen in January 2005 versus January 2006.

2. Compute the appreciation or depreciation of the U.S. dollar relative to the Japanese yen.

3. Check the U.S. inflation rate for 2005 and apply the Fisher effect formula. (Please explain the formula and how you got the numbers).

4. Check the average annual inflation rate in Japan for the same time period.

5. Does it support the answer obtained using the Fisher effect?

6. Why or why not?

7. Please cite all references used

Solution Preview

1. The exchange rate of the US dollar to the Japanese Yen can be found at
http://finance.yahoo.com/echarts?s=USDJPY=X#chart2:symbol=usdjpy=x;range=20050103,20060101;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

From there we can find the USD-JPY exchange rate.
On January 3, 2005 the rate was: 1 USD = 102.6694 JPY
On January 2, 2006 the rate was: 1 USD = 117.9245 JPY

2. The dollar appreciated against the yen. With the values above we can use the formula

Appreciation (or Depreciation) = (Change in Exchange Rate / Original Rate) * 100

Plugging in the values we see that

Appreciation = (15.2551 / 102.6694) * 100 = 14.858%

3 & 4. Go to http://www.bls.gov/cpi/cpid05av.pdf to get the inflation data ...

Solution Summary

The exchange rate of the U.S. dollar to the Japanese yen is evaluated.

$2.19