contestada

Assume the spot rate for the Japanese yen currently is ¥102.32 per $1 and the one-year forward rate is ¥102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?

Respuesta :

Answer:

US interest rate = 2.13 %

Explanation:

given data

spot rate currently = ¥102.32 per $1

forward rate = ¥102.69 per $1

currently earning = 2.5 percent

to find out

what rate can you earn on a one-year risk-free U.S. security

solution

we know here Forward rate that is express as

Forward rate  = spot rate × (1 + interest rate in Japan) ÷ (1+interest rate in USA)      ......................1

put here value we get

1+US interest rate   = [tex]\frac{102.32(1+0.025)}{102.69}[/tex]

1+US interest rate = 1.0213

US interest rate = 2.13 %