You are running the FX trading desk at a large, high-gradeinvestment bank. You have the following rates
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Question:
You are running the FX trading desk at a large, high-gradeinvestment bank. You have the following rates available to you:
Assume that there are no transaction costs, and that you caneither buy or sell at these exchange rates. Also, the interestrates above are quoted in annualized, continuously-compounded form,and are the same for borrowing or lending
(a) What must the 3-month Japanese interest rate be, if there isno arbitrage?
(b) Suppose that the annualized, continuously compounded 3-monthyen in- terest rate is 1.0%. What would you do? Provide precisedetails.
Spot Dollar/Yen Exchange Rate 3-month Forward Dollar/Yen Rate 1-month US dollar) Risk-free Interest Rate 3-month US dollar) Risk-free Interest Rate 120.44 Y/8 119.09 Y/8 5.50% 6.00%
Related Book For
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
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