U.S. France Japan Nominal Interest Rate: 1% 3% 2% Spot Rate: $1.15 $0.0094 Interest rate parity exist

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U.S. France Japan

Nominal Interest Rate: 1% 3% 2%

Spot Rate: $1.15 $0.0094

Interest rate parity exist between the U.S. and France as well as the U.S. and Japan. The international fisher effect exist between

the U.S. and France as well as the U.S. and Japan.

Bill (based in the U.S.) invest in a 1 year CD (certificate of Deposit) in Japan and sells Japanese Yen one year forward to cover his position.

Erica (based in Japan) invest in a one year CD in France and does not cover her position.

What are the returns on funds invested for Bill and Erica respectively? Please justify your explanation both in terms of theory and calculations.

Posted Date: May 19, 2024 10:07 AM

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U.S. France Japan Nominal Interest Rate: 1% 3% 2% Spot Rate: $1.15 $0.0094 Interest rate parity exist

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