Suppose you are the treasurer of IBM with an additional $1,000,000 for a six-month investment. You are considering purchasing US Treasury bonds that yield 1,81% (this is a semiannual rate, not an annual rate, by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = 100 Yen and the six-month forward exchange rate is $1.00 = 110 Yen. 

Required:

What should the interest rate (an investment of comparable risk) be before you are willing to consider investing in Japan for six months?

Answer rating: 100% (QA)

As per the parity condition forward rate spot rate ... View the full answer