Suppose the interest rate in Japan is 1% p. a. and the interest
rate in the US is 2.5% p. a.
Assume borrowing and investing occur at these rates.
The spot rate is ¥100 per dollar. Assume that an investor
borrows $100 and converts it to yen and invests for a year in a yen
denominated bond. What is the one year ahead forward rate
that will make covered interest arbitrage not profitable? [Please
note that the exchange rates are stated in indirect terms.]
¥101.0 per dollar
¥101.5 per dollar
¥102.0 per dollar
¥102.5 per dollar
Suppose the interest rate in Japan is 1% p. a. and the interest rate in the US is 2.5% p. a. Assume borrowing and invest
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answerhappygod
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