You have US Dollar, then you buy Yen. Yen suffer 20% inflation, then you buy US Dollar again?

Question

Then would you say the buying power of US Dollar is now 20% less?

ie. $1000. Buy Yen worth of $1000. Yes suffer 20% inflation. Buy US Dollar. Would you get only $800?


10 pts. for good or extensive answer.

Answer 1

Okay, in this example, let us say the dollar and the yen trade $1 for Y1. You take $1000 US and exchange it for Y1000.

It is implied that the US has a 0% inflation rate, since that should also need to be known.

You hold the Japanese currency and do not invest it in Japan.

The price indices in Japan go from 100 to 120, so a basket of goods purchased by Y1000 on January 1 costs Y1200 on December 31. So currency that would have purchased Y1000 now only purchases Y833.33 in prior year terms.

Assuming currency flows for investment are completely neutral (A BIG IF), then the Yen investment is now only worth $833.33 since using the rule of one price, the price of goods in two different countries (transportation costs being neutralized) should always be equal. It would have been a disasterous investment.

Answer 2

If you have $1000 and you convert it to Yen you will receive 500 yen ( just an example). If the Yen then inflates 20 % 1 Yen is no longer worth $2 but is actually now worth $2.40. If you took your 500 Yen and bought dollars you would receive $1200, or 20 % more.

It sounds like it is easy money to make, but there will probably be a commission and or a fee when you carry out the transfer and the echange rate is never the same for buying and selling.

For example you may be able to Buy 500 Yen for $1000 but if you sold it back the same day you may well only receive 450 Yen after commissions and exchange differences are taken into account.

Answer 3

After the dollar becomes worthless it will be replaced by the Amero just like Bush wants to further his globalist agenda.I wish I could have stocked up in gold but I'm one of the many that will have to ride it out.