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 and the one year ahead forward
rate is ¥102. Assume that an investor borrows $100 and
converts it to yen and invests for a year in a yen denominated
bond. What is future spot rate one year from now which make
the profits for this investor go to zero? [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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