International Finance Questions

You have to do the problem and the first essay. In order to receive full credit on the problem you must show each step in how you would go about calculating. The Essay question can be a paragraph or two in length. PLEASE SHOW ALL WORK

Problem Question:
The inflation rate is 13% in Euroland and 8% in Japan. The spot ER between Japanese yen and Euro is Yen100/euro1. What is the forward or expected spot exchange rate among the 2 currencies?

Essay Question:
Expound on the following. The US monetary authorities want to pursue expansionary monetary policy to increase the level of employment, since there is unemployment. Additionally, it wants to keep the value of the US dollar stable because it is a key reserve currency. Finally, it has a problem with insufficient saving, and it wants to attract capital from other currencies. Are those objectives attainable, or not. Explicate.

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In this case, all the objectives cannot be attained simultaneously since they conflict with each other. First, with the help of expansionary monetary policy, the levels of growth would increase and this would also increase the levels of employment. Growing economy is characterized by inflation as there is an increase in consumption and this would lead to changing values of dollar since the value of the US dollar are determined by forces of free market. Second, as it would attract capital from other economies, there would be the need to offer higher interest rates so that investors perceive that their opportunity costs are less than the interest earned...