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30 October, 23:55

In Japan, suppose Honda's export price per vehicle is ¥4,000,000 and that the exchange rate is ¥125/$. The one-year Japanese yen interest rate is 1.0%; the one-year U. S. interest rate is 3.0%. Assume that International Fisher holds. Assuming a 60% pass-through of exchange rate changes, what would the price of a Honda be at the end of the coming year in U. S. dollars?

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  1. 31 October, 02:32
    0
    Answer:$31,379

    Explanation:Applying the

    Fishers international effect

    1+Ic/1+Ib=S1/S0

    Where Ib represents the interest rate in base country which is Japan in this case

    Ic represents the interest rate in counter country in this case, US

    S0 is the base spot rate or exchange rate at the moment while S1 is the spot rate at the end of the coming year

    Ic = 3%=0.03

    Ib=1%=0.01

    So=145

    Substituting in the formula

    1.03/1.01=S1/125

    Cross multiplying

    S1=125 (1.03) / 1.01=127.475

    So price in US at spot 127.475 will be ¥4,000,000/127.475=$31,379
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Home » Business » In Japan, suppose Honda's export price per vehicle is ¥4,000,000 and that the exchange rate is ¥125/$. The one-year Japanese yen interest rate is 1.0%; the one-year U. S. interest rate is 3.0%. Assume that International Fisher holds.
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