Assume the spot rate is $0.60/Yen, the US 6-month (annualized) interest rate is 6.5%, and the German
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Question:
Assume the spot rate is $0.60/Yen, the US 6-month (annualized) interest rate is 6.5%, and the German 6-month (annualized) interest rate is 2.5%.
a. What is your estimate of today's 6-month forward rate (assuming interest rate parity holds)?
b. Assume that the 6-month forward interest rate is currently quoted at $0.60/Yen. What would you do to take advantage of the arbitrage opportunity? Where would you borrow and lend? Explain and show your work?
Related Book For
Financial Markets and Institutions
ISBN: 978-0077861667
6th edition
Authors: Anthony Saunders, Marcia Cornett
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