Answer:
rate of real depreciation is 7.353%
Explanation:
Given:
Japanese rate of inflation = 2% = 2/100 = 0.02
= 5% = 5/100 = 0.05
Euro weakens relative to the Yen = 10% = 10/100 = 0.1
Computation of rate of real depreciation :
rate of real depreciation
[tex]= \frac{(1- Euro\ weakens\ relative\ to\ the\ Yen)(1 + German\ rate\ of\ inflation)}{(1+Japanese \ rate \ of \ inflation)}-1[/tex]
[tex]\frac{(1-0.1)(1+0.05)}{1+0.02}-1[/tex]
[tex]\frac{(0.9)(1.05)}{1.02}-1[/tex]
[tex]\frac{0.945}{1.02}-1[/tex]
[tex]0.92647-1[/tex]
[tex]-0.07353[/tex]
-7.353%
rate of real depreciation is 7.353%
