Question

Alumina Limited of Australia has called Mitsubishi UFJ Financial Group to get its opinion about the Japanese yen–Australian dollar exchange rate. The current rate is ¥67.72/A$, and Mitsubishi thinks the Australian dollar will weaken by 5% over the next year. What is Mitsubishi UFJ forecast of the future exchange rate

Answer 1

Answer:

Step-by-step explanation:

If the Australian dollar weakens by 5% over the next year, then the A. L will need 5% more Australian dolar to buy Japanese yen. Calculate exchange rate after oe year as follows:

$\yen/AUD=(\yen67.72/AUD)\times (\right \frac{1.00}{1.00+0.05})\left\\\\=\yen64.495/AUD$

Thus, the exchange rate over the next year is ¥64.495/AUD