You have access to the following rates:

Current spot exchange rate: \($0.0100\)/yen Current 180-day forward exchange rate: \($0.0105\)/yen 180-day U.S. interest rate (on dollar-denominated assets): 6.05%

180-day Japanese interest rate (on yen-denominated assets): 1.00%

The interest rates are true 180-day rates (not annualized). You can borrow or invest at these rates. Calculate the actual amounts involved for the two ways around the lake

(Figure 18.1) to get between each of the following.

a. Start with \($1\) now and end with dollars in 180 days.

b. Start with \($1\) now and end with yen in 180 days.

c. Start with 100 yen now and end with yen in 180 days.

Data From Figure 18.1

Transcribed Image Text:

FIGURE 18.1 Current and Future Asset Positions in Two Currencies: The "Lake" Diagram Time Future $ (e.g., 90 days from now) Sell forward (f) Buy forward (1/f) Future (e.g., 90 days from now) Borrow In United States Invest in United States Borrow In Britain Invest In Britain (1 + lus) +lus ( 1 + 1/UK ) (1+lUK) Current $ Sell spot (e) Buy spot (1/e) Current Currencles