Question: Consider some data drawn from Exhibit 6.5. The 1-year rates can be viewed as spot interest rates, and the 2-year rates are yields to maturity

Consider some data drawn from Exhibit 6.5. The 1-year rates can be viewed as spot interest rates, and the 2-year rates are yields to maturity in annualized percent. The spot exchange rate is ¥132.192/£.

What should be the 2-year forward rate to preventarbitrage?

U.K. Japan l year .105 0.370 2 year 1.770 0430

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