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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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 answer-question

Financial Markets and Institutions

ISBN: 978-0077861667

6th edition

Authors: Anthony Saunders, Marcia Cornett

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Posted Date: May 05, 2023 08:13 AM

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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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a To estimate the 6month forward rate using interest rate parity we can use the following formula F ... View the full answer

Financial Markets and Institutions

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