Question

"For this question, assume the following;

1. The interest rate in the Euro area is 4%;
2. The interest rate in Japan is 2%;
3. The current nominal exchange rate is 165 (€1 = 165 Yen);
4. The expected"

Answer 1

The student's question relates to the impact of interest rates and exchange rate movements on international business activities, with specific examples illustrating how fluctuations between the U.S. dollar and the Japanese yen affect trade and economic stability.

Step-by-step explanation:

The question you've asked pertains to the field of international finance, a key subject within business studies, and specifically it involves understanding how different interest rates and exchange rate movements can impact economic activity. The information you've shared discussing changes in the exchange rate between the U.S. dollar and the Japanese yen over various years provides insight into how fluctuations in exchange rates can present risks and opportunities for businesses engaged in international trade. For example, an appreciation or depreciation in the value of one currency against another can significantly affect the profitability of firms that rely on exporting or importing goods and services as their costs and revenues may be denominated in different currencies.