4. The inflation rate in the U. S. is 3%, while the inflation rate in Japan is 1.5%. The current exchange rate is $1 equal to 105 Japanese yen. If purchasing power parity condition is existed, what is the new exchange rate for the yen?

103.4709

Explanation:

The computation is shown below:

Given that

U. S inflation rate = 3%

Japan inflation rate = 1.5%

Current exchange rate = 105

Now the new exchange rate for the yen is

= Current exchange rate * (1 + Japan inflation rate) : (1 + U. S inflation rate)

= 105 * (1 + 1.5%) : (1 + 3%)

= 105 * (1.015 : 1.03)

= 105 * 0.985436893

= 103.4709